The Power of Title: Firm Innovation under Intergovernmental Competition

52 Pages Posted: 16 Apr 2020 Last revised: 6 Feb 2023

See all articles by Maobin Xu

Maobin Xu

The Chinese University of Hong Kong, Shenzhen

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance

Date Written: April 7, 2021

Abstract

We evaluate a Chinese intellectual property policy that aims to recognize cities with superior local innovation and government support. Using staggered batches of model cities, we find a significant impact of the recognition policy on reducing local firm innovation. The negative effect is driven by the promotion incentive of local officials and is stronger during the tenure of the incumbent political elites. Our finding aligns with the hypothesis that local governments redirect subsidies and tax benefits away from firms with good operating performance and close political connections. Our primary results cannot be attributed to the screening of the central government, or transitory policy chasing and the administrative burden of local governments. Overall, our study highlights an unintended consequence of affirmative intellectual property policy on corporate innovation when intergovernmental competition is incorporated into policy design.

Keywords: firm innovation, government support, resource allocation

JEL Classification: H71, O38, P14

Suggested Citation

Xu, Maobin and Wu, Kai, The Power of Title: Firm Innovation under Intergovernmental Competition (April 7, 2021). Available at SSRN: https://ssrn.com/abstract=3559108 or http://dx.doi.org/10.2139/ssrn.3559108

Maobin Xu

The Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Boulevard, Longgang District
Shenzhen, 518172

Kai Wu (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

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