The paper “De-politicization and Innovation: Evidence from China”, coauthored by doctoral student Xiuting QIN and professor Xueyong ZHANG of the School of Finance, was published in “Journal of Accounting and Public Policy”.
Abstract:This study analyzes whether the loss of political connections in the Chinese listed firms affects their innovation. Using number of firm patents as a proxy for innovation, we construct a quasi-natural experiment, which focuses on independent directors with political connections were forced to resign due to CPC regulation in 2013 to explore the casual relation between political connections and firm innovation. The baseline results indicate that the innovation output has improved significantly since the promulgation of the Chinese government’s policy in 2013. In addition, we also find two possible underlying channels that firms tend to increase R&D investments and prefer to hire more senior engineers as their independent directors once they lose political ties. The results suggest that de-politicization has been conducive to promoting technological innovation and firms will compensate for their competitiveness weakened by the loss of political connection through two underlying channels in China, which are also confirmed in additional robustness and placebo tests.
Keywords: Political Connection; Innovation; R&D; Patent