When do state-owned enterprises innovate? The moderating role of pro-market institutions

ABSTRACT

I explore how pro-market institutions moderate the relationship between private or state ownership and innovation. Due to political and social connections, state-owned enterprises (SOEs) have several advantages over private-owned enterprises (POEs) in China, but I hypothesise that these advantages wane when institutional environments prioritise market competition, rule of law, and the rewards to profitable enterprise. Using data from the World Bank’s Enterprise Survey in China, the results suggest that POEs are more innovative than SOEs but only in market-oriented provinces. In provinces that are not market-oriented, SOEs are more innovative than POEs.

KEYWORDS:

• China
• entrepreneurship
• innovation
• market institutions
• private enterprise
• state enterprise

JEL CLASSIFICATION:

• L26
• M13
• O31
• P16

Disclosure statement

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

Data availability statement

The associated data can be found at https://doi.org/10.6084/m9.figshare.25742763.

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/13662716.2024.2364696.

Notes

¹ In centrally planned economies, for instance, decisions were often made by central planners and management only carried out routine orders on behalf of the administration (Pelikan 1986). Despite possessing power and control (Puffer 1994), Soviet management was inflexible and discouraged entrepreneurial behaviour, which led to low value finished goods (Filatotchev et al. 1999).

² https://microdata.worldbank.org/index.php/catalog/1559/study-description.

³ To assess robustness, we replicated the findings with both the hybrid model (within/between) and fixed-effects estimation. Overall, we find similar results with all three models. See the online appendix for more details.

⁴ I use this test, rather than the Pearson correlation, because there is a large mix of dummy and continuous variables. Correlations are similar with either method, however.

⁵ More details are available in the online appendix.

⁶ We thank an anonymous reviewer for this important insight.

⁷ We use random effects estimators in the manuscript and provide robustness checks using fixed effects and the hybrid model (see appendix).