Power of competition: Unraveling the impact of China's fair competition review system implementation on firm innovation

Zumian Xiao, Shuhan Wang, Yepeng Zhang and Deng-Kui Si

Economic Analysis and Policy, 2023, vol. 80, issue C, 1561-1581

Abstract: This paper exploits the introduction of China's Fair Competition Review System in 2016 as a quasi-natural experiment to analyze the impact of changes in market competition on firm innovation. Our findings illustrate that heightened competition fosters innovation at the firm level. After the implementation of the Fair Competition Review System, monopolistic firms face enhanced financing constraints and reduced free cash flows, while their degree of financialization is also curbed. Furthermore, the management's emphasis on innovation strengthens the motivational effect of competition on innovation. The results from heterogeneity analysis suggest that the Fair Competition Review System's stimulating effect on innovation is especially salient for state-owned enterprise, non-high-tech enterprises, large firms, and those located in regions with lower levels of marketization.

Keywords: Firm innovation; Fair competition review system; Quasi-natural experiment; Difference-in-difference estimation (search for similar items in EconPapers)
JEL-codes: K21 M21 O3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:80:y:2023:i:c:p:1561-1581

DOI: 10.1016/j.eap.2023.11.005

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