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Political tie hot potato: The contingent effect of China's anti-corruption policy on cash and innovation

Feifei Lu, Zhu Zhu, Lina Zhu and Hao Gao

Research Policy, 2022, vol. 51, issue 4

Abstract: In this study, we combine the resource-based view (RBV) with institutional theory to examine how a firm's cash holding affects its innovation investments and outcomes and explore the contingent roles of political ties and the national anti-corruption policy. Using 18,125 firm-year observations of Chinese firms from 2007 to 2016, we reveal a three-way interactive effect of cash holding, political ties, and the anti-corruption policy on innovation. Before the policy is implemented, cash holding has the greatest positive effect on R&D investment for politically connected firms, and after the implementation this positive effect for these firms is strongest for R&D outcomes. We propose that the logic of resource utilization efficiency implied by the anti-corruption policy strongly motivates politically connected firms to convert their R&D investment into actual output. The theoretical and practical implications are discussed.

Keywords: Cash holding; Political ties; Institutional theory; Anti-corruption policy; R&D (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:51:y:2022:i:4:s004873332200004x

DOI: 10.1016/j.respol.2022.104476

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