ABSTRACT
The impact of strict financial regulations on innovation in Chinese A-share listed companies was investigated using data spanning from 2014–2021. With New Asset Management Regulation (NAMR) as a quasi-natural experiment and random forest approaches, we demonstrate that financial regulation prevents firms’ capital from ‘real to virtual’, thereby promoting innovation. Reducing debt financing costs and financial investments and easing financial constraints are the primary channels. Moreover, this effect is strong in regions with high levels of financial development and low levels of economic uncertainty.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 The overview of NAMR is reported in supplementary.
2 Variables’ selection is in supplementary.
3 All heterogeneity checks were conducted through inter-group coefficient difference testing.
4 The reasons for heterogeneity tests are in supplementary.
5 Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring Economic Policy Uncertainty ,Quarterly Journal of Economics, 131 (4),1593–1636.