Does flattening the government hierarchy improve corporate innovation? Evidence from China

Yawei Liu, Zhaoguo Zhang, Huayun Zhai and Kam C. Chan

Regional Studies, 2023, vol. 57, issue 8, 1559-1577

Abstract: We examine the impact of flattening the government hierarchy on corporate innovation. Leveraging the change from province–city–county to province–managing–county (PMC) administrative structures in China, we use a different-in-differences research design to show that the PMC reform enhances corporate innovation. The results are robust to a battery of checks. We report that political connection, state-ownership of firms and improved government services mediate the effects of the PMC reform on corporate innovation. Moreover, in the cross-sectional analysis, we find that the impact of the PMC reform is more salient for non-state-owned firms or when a province has new leadership.

Date: 2023
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DOI: 10.1080/00343404.2022.2148644

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