Tax integrity and innovation output: evidence from China

This paper systematically analyzes the relationship between government support and private enterprise innovation. A firm‐level proxy for government support is derived based on Chinese context. Specifically, we explore whether and how government subsidies affect private firms' innovation output. We find that government subsidies can promote private enterprise innovation, and this impact will be further strengthened when firms face high level of financing constraints and when large shareholders pledge their equities. However, this impact will be weakened in regions with high marketization degree and good information environment. Further analysis shows that government support can have a positive impact on corporate innovation by increasing private firms' innovation input and reducing financing costs. Our study sheds new light on the role of government support by investigating the boundary conditions and exploring the impact channel of its effect. Also, this paper fills a gap in the research on the role of government support and the situational research by putting this issue in Chinese context.

PurposeThis study investigates the relationship between anti-financial crime activities and trade credit (TC) financing, exploring whether such activities reduce reliance on the costly TC financing and enhance access to less expensive long-term debt (LTD). This research aims to address the debate on the role of nonfinancial information, such as anti-financial crime practices, in impacting creditors’ decisions.Design/methodology/approachUsing data from public companies obtained through the S&P Capital IQ database, this study covers the period from 2019 to 2021. Multivariate regression analyses are used to assess the impact of four key anti-financial crime activities – corruption reporting, addressing bribery cases, whistleblowing policies and codes of conduct – on TC financing and LTD.FindingsThe descriptive statistics highlight that most firms inadequately address financial crime, except for whistleblowing policies, which are mandated under the Sarbanes-Oxley Act. The results demonstrate a negative and significant relationship between anti-financial crime activities and TC financing, indicating that firms engaging in these activities rely less on costly TC. In addition, our results reveal a positive association between anti-financial crime activities and LTD, suggesting that increased transparency and reduced financial risk enable firms to access less expensive conventional funding.Originality/valueThis paper contributes to the literature by establishing the role of anti-financial crime activities in shaping firms’ financing choices, providing empirical evidence of their impact on creditors’ decision-making. It reveals the importance of transparency and governance in reducing financing costs and improving access to conventional funding, offering valuable insights for regulators, creditors and investors.

ABSTRACTThis study addresses whether the positive consequences of corporate innovation can mitigate the negative repercussions of earning management practices on corporate sustainability. Specifically, it investigates the impact of real earning management (REM) practices on corporate environmental, social and governance (ESG) performance. Likewise, it explores the mediating role of corporate innovation inputs and outputs in this relationship. The study uses a sample of the A‐share listed firms in the Chinese stock market from 2011 to 2021. We measure REM activities as a comprehensive index of corporate abnormal cash flows, abnormal production costs and abnormal discretionary expenses. The Chinese firms' ESG performance is based on Huazheng's ESG rating. Corporate innovation is categorised into innovation input (i.e., R&D expenditure) and innovation output (i.e., patent applications). The study finds that REM practices inversely affect corporate ESG performance and its various pillars. Likewise, firms that engage in higher REM practices are less likely to allocate resources to innovation (i.e., lower R&D expenditure) and have a low innovation output (i.e., fewer patent applications). Nevertheless, firms with higher innovation input and/or higher innovation output exhibit higher ESG performance. Finally, the corporate innovation input and output mediate the relationship between REM practices and ESG performance, suggesting that the positive influence of innovation on ESG performance helps to mitigate the negative consequences of earnings management practices. These results underscore the significance of ethical financial practices and innovation‐driven strategies in enhancing corporate ESG performance.

PurposeUsing Chinese A-share listed firms between 2007 and 2020 with 21,380 observations, we aim to examine the impact of cross-ownership on firms’ innovation output and explore the underlying mechanisms.Design/methodology/approachTo test the influence of cross-ownership on firms’ innovation output, this paper constructs an ordinary least square regression model. The explained variables are firms’ innovation output, including the total number of patent applications (Apply) and the number of invention patent applications (Apply_I). Considering the long period of patent R&D, we take the value of the explained variables in the following year for regression. Cross-ownership (Cross) is the explanatory variable; Control is the control variable; and ε is the regression residual term.FindingsWe find that cross-ownership significantly promotes corporate innovation output, indicating that cross-owners play an important role in “collaborative governance.” This finding remains unchanged after conducting a series of robustness tests. We also find that cross-ownership contributes to innovation output mainly through two plausible channels: the relaxation of financing constraints and reducing both types of agency costs. Further analysis shows that cross-ownership has a more pronounced influence on innovation output in those firms with higher equity restriction ratios and facing more competitive markets. Moreover, cross-ownership has a profound impact on firms’ innovation quality and innovation efficiency, thereby increasing firm value.Research limitations/implicationsThis study provides important policy implications. First, cross-owners should actively play their resource and supervision advantages to improve firms’ long-term development capability through the “collaborative governance” effect. Second, listed companies in China should be fully aware of the value of the cross-ownership and use the cross-ownership as a bridge to strengthen the cooperative relationship with firms in the same portfolio. Meanwhile, they need to pay attention to cross-ownership’s “collaborative governance” effect to provide an impetus for the healthy development of enterprises. Finally, government regulators should maintain appropriate supervision of the cross-ownership linkage in the market.Originality/valueOur findings show that cross-ownership significantly contributes to firms’ innovation output, indicating that cross-owners play the role of “collaborative governance.” While paying attention to the collusion effect of the cross-ownership, they shall not ignore its governance effect, for example, the promotion effect on the innovation level. Government regulators should appropriately supervise the cross-ownership linkage, which is conducive to maintaining the market order and driving the healthy development of the capital market.

Institutional site visits and corporate innovation: The role of analyst coverage

Corporate Innovation and Crash Risk: Output and Input Channel

The potentially serious economic consequences of China’s severe air pollution problem cannot be overlooked, especially the impact on corporate innovation, which is a core driver guiding firms towards efficient and high-quality development. This paper explores the direct effect and mechanism of PM2.5 on firms’ innovation output through the identification strategy of instrument variable. Based on the data of Listed Companies in China from 2003 to 2016, we used thermal inversion as the instrument variable for PM2.5 for estimation. The results show that each 1 ug/m3 increase in PM2.5 concentration causes an average reduction in innovation output of listed companies by about 7.0%. The test of “Porter hypothesis” shows that environmental regulation has not encouraged firms to innovate more. We further used the 2013 China Social Survey (CSS) data to verify the human capital mechanism of PM2.5 affecting firm innovation at micro level. The results show that PM 2.5 deteriorates the healthy human capital in a firm, which reduces the innovation output. This article helps to understand the relationship between air pollution and firms’ innovation and to develop appropriate policies.

ABSTRACTIn the face of land degradation and environmental constraints, it is imperative to have an adaptive financial geography structure and a land resource utilization system that supports corporate innovation. This study constructs a refined financial geographic accessibility measurement index. By integrating multi‐source spatio‐temporal big data, the study breaks through the static limitation of traditional statistical data. It accurately analyzes the spatial synergistic effect between the spatial distribution of financial institutions and land use planning. Land use data, such as spatial development rate and spatial interest points, provide high‐precision spatial evidence for revealing the mechanism of financial geographic accessibility affecting corporate innovation. Further, from the environmental sustainability perspective, this paper studies the moderating effect of environmental constraints on corporate innovation. Financial geographic accessibility can improve corporate innovation by reducing financing costs, accelerating knowledge spillover, realizing intermediate input sharing, improving labor matching, and giving play to location advantages. Notably, this facilitation effect performs better in cities with high energy consumption and carbon emissions. Heterogeneity analysis shows that proximity to the city center, low industrial maturity, government subsidies, soes, and large‐scale corporations significantly amplify the innovation benefits of financial geographic accessibility. This study combines remote sensing data with spatial big data to provide a new methodological framework for analyzing land use and degradation.

It is empirically challenging to test the effect of common ownership on corporate innovation as the observed impact of common ownership on corporate innovation is a net effect due to two offsetting powers: technological spillover and market stealing. This paper tends to mitigate that issue by investigating the impact of common ownership on the strategic features of corporate innovation. We analyze the effect of common ownership on corporate innovation activities using stacked difference-in-differences analyses based on events of financial institutional mergers and acquisitions. We find no significant effect of common ownership on research and development (R&D) expenditures, patent applications, and citations, whereas we find a positive effect of common ownership on exploitative innovation strategy. Our findings suggest that the weak market-stealing effect of exploitative innovation incentivizes common owners to encourage a higher weight of exploitative innovation among innovation outputs. Our study contributes to the current literature in three ways. First, it provides new evidence of the anti-competitive effect of common ownership. Second, it empirically examines competing theoretical predictions of common ownership impacts on corporate innovation. Third, it identifies common ownership as one of the determinants for variations of innovation strategy.

Air pollution not only poses significant threats to the physical and mental well-being of individuals, but it also has the potential to trigger a regional brain drain, thus inhibiting corporate innovation performance. This study explores the impact of air pollution on corporate innovation from the perspective of top management quality. We find that lower air quality significantly reduces the quality of corporate top management, thereby reducing their innovation output. However, local government talent attention alleviates the negative impact of air pollution on corporate innovation. Further analysis reveals that the local government’s environmental attention aggravates the negative effects of air pollution on corporate innovation. Finally, executive compensation alleviates the negative impact of air pollution on corporate innovation.

Corporate digital transformation and trade credit financing

PurposeThe purpose of this paper is to examine the impact of common ownership on corporate innovation, including innovation input, innovation output and postgrant patents.Design/methodology/approachThis paper uses the ordinary least square model and the difference-in-differences technique to evaluate the effect of institutional interlocking shareholdings on the life cycle of corporate innovation.FindingsThe results show that common ownership impedes innovation measured by patent grants and citations through reduced R&D expenditures. However, common ownership protects postgrant patents by lowering the likelihood that a co-owned firm gets involved in patent litigation and by accelerating the settlement of lawsuits between co-owned firms.Practical implicationsFrom a regulatory perspective, common ownership in younger firms that rely heavily on R&D investment to produce innovation outputs is detrimental and needs to be regulated. However, common ownership in mature firms, which hold a big pool of patents or rely on acquiring patents to compete, is of less concern because of the protective role detected.Originality/valueThe paper provides a first comprehensive look into how same-industry common ownership affects innovation input, innovation output and postgrant patents. The research also reconciles the anticompetitive effect and the coordinative effect of common ownership documented in the literature.

This paper examines the real effects of accounting for software development costs on corporate innovation. We explore the adoption of SFAS 86 (Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed), which requires the capitalization of certain software development costs. We find that public software firms experience improvements in both innovation quantity and scientific quality, and their innovation strategies become riskier and more diversified following the adoption of the standard, compared to other high-tech public firms. Consistent with SFAS 86 helping to reduce agency-related costs, the real effect is more pronounced for software firms with greater financial constraints, higher analyst following, and lower concentrations of institutional shareholding. Overall, our study shows that accounting policies for software development costs have real implications not only for firms’ innovation output but also for their’ choices regarding the types of innovation to pursue.

Financial Reporting Frequency and Corporate Innovation

Prior research on corporate innovation has highlighted the roles of public support especially R&D subsidy. However, there are mixed findings regarding the effect of R&D subsidy on corporate innovation output. In this study, we develop an integrated view of resource allocation and resource utilization to study how this effect may vary according to resource utilization efficiency of firms when firms are awarded R&D subsidy based on different rules. We hypothesize that when R&D subsidy is allocated to a firm based on its technology capability, such subsidy will have stronger positive effect on innovation output with the presence of high resource utilization efficiency. In contrast, when a firm is allocated to R&D subsidy based on political connection, the positive effect of R&D subsidy on innovation output becomes weaker with decreasing resource utilization efficiency. Our results based on data of Chinese privately listed firms between 2010 and 2016 confirm these hypotheses. The findings offer fresh and comprehensive insights on how government allocation rules might influence the ways in which firms use resources to innovate and further influence the effectiveness of public support in emerging countries.