Enterprise Annuity and Firm Innovation: Evidence from China

Sheng Fan, Yonggen Luo, Huan Dou and Wenqi Han

Emerging Markets Finance and Trade, 2025, vol. 61, issue 6, 1479-1507

Abstract: This paper examines the relationship between enterprise annuity and innovation. This research assesses innovation using the metric of patent applications and discovers a significant decline in innovation after establishing an annuity system. This effect is profoundly pronounced in high-tech corporations. Our findings suggest that funding obligations for the annuity system potentially divert resources from research and development (R&D), consequently leading to diminished innovation. Furthermore, we also find that establishing the enterprise annuity system negatively affects the number of invention and non-invention patent applications. Enterprise annuity increases the minimum wage standard and encourages companies to hire more highly skilled employees. Our study also identifies potential mitigating factors: external cash inflow and good corporate governance appear to alleviate the inhibitory effect of corporate annuities on firm innovation. These findings contribute valuable insights to the discourse on corporate innovation and present empirical evidence on the role of corporate annuities.

Date: 2025
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DOI: 10.1080/1540496X.2024.2359584

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