Innovation-driven policy and firm investment

Guangwen Hou and Chenyang Feng

Finance Research Letters, 2024, vol. 61, issue C

Abstract: This study examines whether and how innovation-driven policy affects investment efficiency. Taking the approval of national innovation-driven pilot city as an exogenous shock, we conduct a staggered Difference-in-Difference (DID) approach to investigate the causal effects of the innovation-driven orientation on investment efficiency in the context of China. We find that the innovation-driven policy improves firms’ investment efficiency. Further, we distinguish under-investment and over-investment companies and find that after the approval of national innovation-driven pilot city, firms are more active in reducing redundant investments than their counterparts. The maintenance investment expenditure of firms is crowded out, while the investment in innovative R&D increases significantly. Heterogeneity analysis shows that the effect on investment efficiency is particularly pronounced in private firms and low financial constrained firms.

Keywords: Innovation-driven; Investment efficiency; Investment expenditure (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:61:y:2024:i:c:s154461232400031x

DOI: 10.1016/j.frl.2024.105001

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