Innovation in Business Groups: Evidence from China

ABSTRACT

This paper examines the innovation in companies within business groups. Compared with stand-alone companies, companies within business groups invest more in innovation activities. Further analysis shows that companies within business groups are supported by stronger cash flow from their parent companies and under competition pressure from peer firms within business groups. The effect is more pronounced in the firms in the high-tech industry and competitive regions. The results are consistent with various endogenous and robustness tests.

KEYWORDS:

• Business groups
• innovation
• cash flow
• peer effect

Acknowledgments

The authors would like to thank the Editor Prof. Paresh Kumar Narayan, the anonymous reviewers for their valuable comments and the constructive comments from Wenhao Tan. We also like to thank the First International Symposium on Accounting and Finance in Emerging Market at Nanjing University of Finance and Economics. Our research is supported by the National Natural Science Foundation of China (NSFC: 72072070; NSFC: 72002043; NSFC: 71602070; NSFC: 71702190), by the Natural Science Foundation of Guangdong Province (2020A1515010402; 2019A1515011881), and by the Fundamental Research Funds for the Central Universities (19JNQM17; HUST: 2019WKYXQN050).

Notes

1. CSMAR is one major database supporting accounting and finance research on China issues.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China (7162070,71872071,72002043,72072070); Guangdong Basic and Applied Basic Research Foundation) (2019A1515011881,2020A1515010402); the Fundamental Research Funds for the Central Universities (19JNQM17,Q2 HUST: 2019WKYXQN050)..