Political tie hot potato: The contingent effect of China's anti-corruption policy on cash and innovation

Feifei Lu, Zhu Zhu, Lina Zhu, Hao Gao

Research output: Contribution to journalArticlepeer-review

Abstract

In this study, we combine the resource-based view (RBV) with institutional theory to examine how a firm's cash holding affects its innovation investments and outcomes and explore the contingent roles of political ties and the national anti-corruption policy. Using 18,125 firm-year observations of Chinese firms from 2007 to 2016, we reveal a three-way interactive effect of cash holding, political ties, and the anti-corruption policy on innovation. Before the policy is implemented, cash holding has the greatest positive effect on R&D investment for politically connected firms, and after the implementation this positive effect for these firms is strongest for R&D outcomes. We propose that the logic of resource utilization efficiency implied by the anti-corruption policy strongly motivates politically connected firms to convert their R&D investment into actual output. The theoretical and practical implications are discussed.

Original languageEnglish
Article number104476
JournalResearch Policy
Volume51
Issue number4
DOIs
StatePublished - May 2022

Keywords

  • Anti-corruption policy
  • Cash holding
  • Institutional theory
  • Political ties
  • R&D

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