Government efficiency and enterprise innovation – evidence from China

ABSTRACT

We use Chinese listed firms from 2010 to 2016 to explore the incentive mechanism and the differential effect of 27 provincial government efficiency on enterprise innovation. We find that the government efficiency positively affects the innovation investment and output. The government efficiency helps reduce rent-seeking opportunities; hence, rent-seeking firms react more positively to government efficiency. We also find that high-tech industry membership and state-ownership affect the incentive mechanism of government efficiency for enterprise innovation.

KEYWORDS:

• Enterprise innovation
• government efficiency
• rent-seeking
• high-tech industry
• state ownership

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Han Chen earned her Ph.D. from Xiamen University in China. Her teaching and research interest is in accounting. She has published 20 original research papers in Chinese. She also coauthored four accounting textbooks.

Soon Suk Yoon earned his Ph.D. from University of Wisconsin - Madison. His teaching and research interest is in accounting. He is a professor emeritus at Chonnam National University in Korea where he has taught for 26 years before joining Western Illinois University. He has more than fifty original research papers in Korean and international journals. He wrote several accounting books. He has been awarded many times for excellence in teaching and research works including an Outstanding Accounting Educator Award by the Korean Accounting Association. He is a former president of the Korean Accounting Association and a former board member of the Korean Accounting Standards Board.

ORCID

Soon Suk Yoon http://orcid.org/0000-0001-9506-731X

Notes

1 https://www.transparency.org/research/cpi/overview

2 Since the CPBEI provides the index scores for only three years of 2010, 2012 and 2016, we use an interpolation method to calculate the index score for the missing years in between the reported years.

3 The CPBEI is analogous to, and yet different from the Government Effectiveness in the Worldwide Governance Indicators (WGI) published by the World Bank. The World Bank has been evaluating six dimensions of governance: Voice and Accountability, Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption.

4 However, firms can choose their locations. Particularly, technology-oriented, innovative, start-up firms have every incentive to locate where government policies are more conducive to innovation. Hence, a bidirectional causality can exist between government efficiency and enterprise innovation. We appreciate a reviewer's comment on the bidirectional causality.

5 Tobit regression is considered proper if the dependent variable takes on positive values only.

6 The number of listed firms in the top six provinces (DList = 1) out of 27 provinces account for 57.3% of the total number of listed firms. The top six provinces are Guangdong, Zhejiang, Beijing, Jiangsu, Shanghai, and Shandong.

7 National Bureau of Statistics on Printing and Distributing the Classification of High-Tech Industries (2017)