1. Political Connections, Competition, and Innovation: Quasi-Experimental Evidence from Chinese Firms
- Author
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Lei Cheng and Zhimin Li
- Subjects
History ,Economics and Econometrics ,Government ,Polymers and Plastics ,media_common.quotation_subject ,Face (sociological concept) ,Development ,Investment (macroeconomics) ,Industrial and Manufacturing Engineering ,Competition (economics) ,Patent application ,Politics ,Market economy ,Bureaucracy ,Business ,Business and International Management ,China ,media_common - Abstract
This paper studies the causal impact of political connections on innovation. Using a unique hand-collected data set of sudden deaths of politically connected independent directors (i.e., retired government officials) in Chinese firms, we find that an unexpected loss of political connections increases a firm’s patent applications by 34% (14 patents). The innovation response is more pronounced in firms with stronger connections: when the connected directors held higher-level bureaucratic positions or when firms operate within their geographical jurisdictions. Upon losing political connections firms face higher competitive pressure and divert resources from rent-seeking into innovation investment. Our findings highlight the role of competition in the substitution between political connections and innovation, particularly in settings where formal institutions are weak.
- Published
- 2023