Abstract
This study investigates how firms invest in building and maintaining business–government (B–G) ties when they aim to innovate in regions where, due to institutional transitions, institutional contexts differ remarkably. Using data from the China Enterprise Survey of the World Bank, empirical findings suggest that the influence of B–G ties on Chinese firms’ product innovation is different in distinctive institutional contexts in China. More specifically, during institutional transition, B–G ties become less efficient for facilitating product innovation when regional legal institutions and infrastructural supporting systems in a region are more stable, fair, and efficient. By contrast, during institutional transition, a positive effect of B–G ties on firm product innovation in a region becomes more significant when financial systems are relatively advanced. In addition to this, the value of B–G ties for firm product innovation appears to be more stable when business regulation develops within subnational regions.
Highlights
After more than 30 years of rapid development, Chinese manufacturing gradually shifts its development model from low-tech and China-made to high-tech and China-innovated
Column 1 presents the null model of the multilevel linear model, which indicates that 20.25% of the variance is attributable to the city-level (Var(_cons) = 12.44, Var(Residual) = 49.0)
To test Hypothesis 1, Model 2 is run; it examines the direct influence of B–G ties on firms’ product innovation
Summary
After more than 30 years of rapid development, Chinese manufacturing gradually shifts its development model from low-tech and China-made to high-tech and China-innovated To adapt to this trend, the Chinese government continuously contributes to institutional reforms, leading to institutional transitions which characterize China’s transitional economy [1]. To move towards a more market-driven system that develops itself through a continuous process of ongoing product innovation, China may issue new rules and abort obsolete regulations frequently, which can lead to rapid changes in social, economic, legal, and political institutions [3,4] Such changes may challenge firms’ operations with regard to innovation, since they often restructure the rules firms are used to. Existing literature has extensively confirmed the influence of B–G ties on firms’ performance [2,12], on firms’ strategy [11,13], and on firms’ product innovation [14,15]
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