Political Instability, Access to Private Debt, and Innovation Investment in China
32 Pages Posted: 21 Aug 2016
Date Written: August 19, 2016
We provide evidence from China that access to loans positively affects the probability that a firm will invest in innovation. However, the positive effect of private debt on innovation investment is significantly moderated by political instability. The cost of political instability on innovation is less severe when the entrepreneur has political connections to party leaders. Furthermore, we show that political connections increase the probability that an entrepreneur has access to direct governmental support for innovation investment. These findings are more pronounced for technology intensive industries.
Keywords: Political Instability; Private Debt; Innovation; China
JEL Classification: G21, G28, O30
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