How state ownership affects corporate R&D: An inverted‐U‐shaped relationship

Fu, Tong; Jian, Ze; Li, Youwei

Abstract

The existing literature provides mixed evidence about the effect of state ownership on corporate research and development (R&D). As this article hypothesizes, state ownership has a positive institutional effect on the investment environment for R&D and a negative institutional effect on firm operations for innovation. With evidence from China, we confirm that state-owned shares have an inverted-U-shaped causal effect on corporate R&D and that having the state as a minority shareholder is optimal for corporate R&D. We further document that, when a firm's R&D investment at least equals reinvestment of its profit, the threshold for state-owned shares is larger than it would be otherwise. Therefore, we justify the contradictory institutional effects of state ownership with an inverted-U-shaped relationship, thereby enhancing understanding of institutions and state ownership for corporate finance.

Citation

Fu, T., Jian, Z., & Li, Y. (in press). How state ownership affects corporate R&D: An inverted‐U‐shaped relationship. International journal of finance & economics : IJFE, https://doi.org/10.1002/ijfe.2589

• Journal Article Type: Article
• Acceptance Date: Nov 29, 2021
• Online Publication Date: Dec 30, 2021
• Deposit Date: Jan 1, 2022
• Publicly Available Date: Dec 31, 2023
• Journal: International Journal of Finance and Economics
• Print ISSN: 1076-9307
• Electronic ISSN: 1099-1158
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1002/ijfe.2589
• Keywords: Access to resources; China; Corporate R&D; Inverted-U-shaped relationship; State ownership; Resource utilization
• Public URL: https://hull-repository.worktribe.com/output/3904782