How Does COVID-19 Affect Corporate Research and Development? Evidence from China

ABSTRACT

This paper examines how COVID-19 affects firm research and development (R&D) using the data of Chinese-listed companies from 2018 to 2020. Our results show that COVID-19 significantly inhibits firm R&D input. However, such significant evidence mainly exists on firms classified as private enterprises, with smaller size, or belonging to high-technology industries. Moreover, we find evidence that the epidemic reduces firm revenue but, in the meantime, increases the financing constraint, leading to less R&D investment. The conclusion of this study provides a theoretical basis and practical reference for enterprises to make better decisions on innovative activities.

KEYWORDS:

• COVID-19
• research and development
• revenue
• financing constraint

JEL:

• O31
• O34
• O38

Acknowledgments

We would like to thank the two anonymous referees and Paresh Kumar Narayan (Editor-in-Chief) for their helpful comments and suggestions.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. See https://www.worldometers.info/coronavirus/.

2. One recent paper by Luo and Zhang (2022) also focuses on the impact of uncertainty on Chinese corporate innovation input.

3. A series of existing literature working on firm innovation normally focuses on those firms in the manufacturing industry (see Dai and Sun 2021; Freel 2003; Kim, Jung, and Hwang 2019).

4. We exclude cash flow ratio from the control variables used here due to multicollinearity.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [Grant No. 72204264].