Profit Constraint, Ownership Structure and Indigenous Innovation

Li Yong
School of Economics and Management, Northwest University, Xi’an, China
Research Center of West China’s Economic Development

Abstract: Under a logical self-consistent theoretical framework, this paper discusses SOEs’ innovation efficiency and innovation conundrum facing Chinese local firms. By creating a theoretical model of endogenous technology level, this paper finds that credit discrimination and soft budget constraint have both a crowding out effect and compensatory
effect on corporate innovation. When firms engage in less profitable innovation, the compensatory effect outweighs crowding out effect, and a higher share of SOEs will promote the overall level of innovation. On the contrary, when firms engage in more profitable innovation, the compensatory effect is smaller than crowding out effect, and a higher share of SOEs will diminish overall innovation. In this sense, SOE innovation exhibits a threshold characteristic. Then, this paper carries out an empirical test using the inter-provincial panel data of 1997-2013, which proves our assumption. Finally, this paper arrives at conclusions and policy implications.

Keywords: SOEs, compensatory effect, crowding out effect, threshold characteristic

JEL Classification Codes: B25, D22, E22
DOI:1 0.19602/j .chinaeconomist.2019.3.099602/

¥0.01加入购物车