Abstract
Although it has been suggested that institutional context influences a firm's innovation performance, the role of regulatory institutions has been underexplored. Extending previous research, this study investigates whether and how regulatory institutions (i.e. state ownership, region-specific marketization and industry-specific institutional policy) affect innovation performance of emerging market enterprises (EMEs). Evidence derived from a large sample of Chinese manufacturing firms demonstrates that state ownership positively moderates the effect of R&D intensity on innovation performance. However, state ownership is not equally beneficial for all firms. Our analysis shows that region-specific marketization and industry-specific institutional policy enhance the innovation-enhancing effect of state ownership. By revealing the role of regulatory institutions, our study points to the importance of looking beyond firm boundaries to understand why EMEs are able to innovate despite their weak internal capabilities.
Highlights
This paper studies how institutional forces affect innovation of firms in emerging markets.Emerging market enterprises (EMEs) have significantly improved their technological capabilities in recent years and are increasingly relying on technological innovation to compete in the global marketplace (Wu et al, 2016; Yi et al, 2013)
We argue that regulatory institutions at the firm, region- and industry- levels compensate for the weak capabilities of EMEs, enabling them to enhance innovation performance
This finding suggests that state ownership enhances the effects of R&D intensity on innovation performance. Both interaction terms in Models 4 and 5 are positive and significant, corroborating Hypotheses 2 and 3, respectively. These results indicate that state ownership is positively associated with innovation performance, such effect is contingent upon industry- and location-specific idiosyncrasies including the market development of each region and the institutional policy within a given industry
Summary
This paper studies how institutional forces affect innovation of firms in emerging markets.Emerging market enterprises (EMEs) have significantly improved their technological capabilities in recent years and are increasingly relying on technological innovation to compete in the global marketplace (Wu et al, 2016; Yi et al, 2013). While prior studies have focused on the (direct) effect of state ownership on EMEs’ innovation (e.g., Choi et al, 2011; Ren et al, 2005), it remains unclear how state ownership affects innovation performance by moderating the effect of R&D intensity of the firm It is both theoretically and empirically well established that a firm’s internal R&D has a positive effect on innovation performance (Schumpeter, 1942; Kafouros et al, 2008; Wang and Kafouros, 2009). Our approach enables us to explain how internal capabilities and firm-specific institutional idiosyncrasies jointly shape the innovation outcomes of Chinese firms
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