How Can Local Policy Uncertainty Encourage Firm Innovation: A Competitive Advantage Channel
55 Pages Posted: 26 Jan 2018 Last revised: 6 Aug 2018
Date Written: July 1, 2018
Exploring turnovers of city heads in China, we find that local policy uncertainty can encourage firm innovation. This positive relation concentrates in state-owned enterprises, which possess competitive advantage in spike of local policy uncertainty because of their innate government connections and therefore better understanding of future policy changes. Within SOEs, the effect is more pronounced for those located in cities where local official’s turnover is more frequent and local non-SOE competitors exist, and with higher sales growth and lower market shares. Our findings indicate that heightened local policy uncertainty opens up opportunities for firms with information superiority to strategically explore competitive advantages through innovative activities.
Keywords: Local Policy Uncertainty; Firm Innovation; Competitive Advantage; Information Superiority; State-owned Enterprises
JEL Classification: G34; G38; G14
Suggested Citation: Suggested Citation