Abstract
We employed the fixed effects model to examine (1) the relationship between China’s financial structure and technical innovation and (2) the impact of China’s financial structure on heterogeneous technical innovation. This study was conducted using China’s provincial panel data from 2004 to 2016. Results show that the market-oriented financial structure had an incentive effect that led to improvement in the level of technical innovation. Furthermore, we found that financial structure had different impacts on heterogeneous technical innovation. Specifically, the market-oriented financial structure significantly enhanced the improvement in the output level of regional original technical innovation; however, it had no significant impact on imitative technical innovation. Keywords: financial structure, technical innovation, empirical research DOI: 10.7176/RJFA/11-17-01 Publication date: October 31 st 2020
Highlights
With China entering a new normal in economic development in recent years, high-quality development will become an important direction for the country’s socio-economic development for years to come
According to Brown et al (2017), the credit market is more conducive to supporting innovation in capital-intensive industries, while it has no significant impact on technical innovation in high-tech industries
We found that the market-oriented financial structure could significantly stimulate original technical innovation, but that it had no significant impact on imitative technical innovation
Summary
With China entering a new normal in economic development in recent years, high-quality development will become an important direction for the country’s socio-economic development for years to come. The existing literature has not produced consistent conclusions It is still not clear whether the current financial structure promotes or inhibits technical innovation in China, the world’s largest economy in transition. They found that debt financing had a weaker positive effect on promoting enterprise innovation activities than equity financing In their empirical study, Nanda and Nicholas (2014) found that the development of intermediary banks played an important supporting role in technical innovation. The study by Shancheng, Laiqun, and Huihong (2019) employed the dynamic GMM and dynamic threshold models They found that that the capital market had a stronger promoting effect on enterprise innovation and financing activities in developed countries with a sound legal system. The conclusions of existing research on the relationship between financial structure and technical innovation are not consistent This relationship needs further study in China, the world’s largest economy in transition. This study can inform decision makers on how to optimize China’s financial structure to achieve greater advances in science and technology
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