Digital Economy and CorporateInnovation-Washing——An Empirical Study on How InformationMitigates Policy Distortion

Li Jian*1,2, Zhao Lexin1,2, Yao Nengzhi1,2, Bai Junhong2

1 Jiangsu Rural Finance Research Base, Nanjing Normal University, Nanjing, China

2 School of Business, Nanjing Normal University

Abstract: As stated in the Report to the 20th National Congress of the Communist Partyof China (CPC), innovation remains at the heart of China’s modernization drive, andit is vital to optimize the allocation of innovation resources, deepen structural scientificand technological reforms, and enhance the overall performance of China’s innovationsystem. Government incentives have boosted firm R&D and innovation efforts; however,they have also triggered an innovation dilemma where enterprises, capitalizing on theirinformational advantages, resort to innovation-washing behaviors that undermine theintended purpose of the policies. Based on the information asymmetry theory, this paperconducts an empirical study on how the digital economy affects firms’ innovation-washingbehavior. The development of the regional digital economy could suppress firm innovationwashingbehavior in the region, and such a mitigation effect is primarily caused by anincrease in the number of digital industry professionals. According to our heterogeneityanalysis, the digital economy has a greater impact on firm innovation-washing behavior forcertain types of enterprises, including non-state-owned enterprises (non-SOEs), small andmedium-sized enterprises (SMEs), enterprises in less competitive industries, and enterprisesin unfavorable business environments. Our mechanism analysis revealed that the digitaleconomy may restrain innovation-washing behavior by reducing information asymmetrybetween enterprises and external stakeholders. In terms of economic outcomes, the digitaleconomy has the potential to directly influence firm innovation output while also indirectlymitigating the subsequent decline in innovation output by discouraging innovationwashing.This paper enriches the research findings on how the digital economy breaks down“information silos” and offers a potential solution to the “emphasis on input and quantityover quality and efficiency” phenomenon in science and technology innovation practices.

Keywords: Digital economy; innovation-washing behavior; information asymmetry;

JEL Classification Codes: G14, G38, O32

DOI: 10.19602/j.chinaeconomist.2025.01.02