Political Instability, Access to Private Debt, and Innovation Investment in China

Cumming, Douglas J.; Rui, Oliver M.; Wu, Yiping

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Political Instability, Access to Private Debt, and Innovation Investment in China

Emerging Markets Review, Forthcoming

32 Pages Posted: 21 Aug 2016

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Oliver M. Rui

China Europe International Business School (CEIBS); affiliation not provided to SSRN

Yiping Wu

Shanghai University of Finance and Economics

There are 2 versions of this paper

Date Written: August 19, 2016

Abstract

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

Suggested Citation: Suggested Citation

Cumming, Douglas J. and Rui, Oliver M. and Rui, Oliver M. and Wu, Yiping, Political Instability, Access to Private Debt, and Innovation Investment in China (August 19, 2016). Emerging Markets Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2826810