Journal of Applied Finance & Banking

Political connection and corporate innovation: Evidence from China

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• Abstract

   

  This paper studied the correlation between corporate innovation and Chinese private enterprises’ political connection based on a sample from 2008 to 2016 of all listed Chinese private companies. The empirical results showed that political connection contributed to corporate innovation and increased the corporate innovation output. The study further conducted a Difference-in-Difference approach which utilized China’s 2013 anti-corruption campaign as a natural experiment and the results showed that the positive effects between political connection and corporate innovation were weaken among political connected firms after the anti-corruption campaign. At last, the paper explained the channel of above relationship from the prospect of financing constraints and institutional complements.

  
  

  JEL classification numbers: O31, P26, P48

  Keywords: Political connection, Corporate innovation, Financing constraints