Research On Promotion Tournament、market Integration And Firms’ R&D Behavior

This paper examines whether the request of local government’s performance and official turnovers will distort firms’innovation activities in the jurisdictions based on China’s distinctive institutional background-Promotion Tournament. In this paper, on the basis of prior studies, I endogenously put the government officials’ promotion pressure and local governance environment into the firms’R&D decision-making model, and explain the reason of the low firms’ innovation efficiency in our country from the perspectives of government-enterprise relationship, which is derived from the promotion tournament, and rent-seeking activities. This study helps to understand the political logic of Chinese firms’innovation during the economic transition period. Firms’innovation behavior is not a pure investment activity itself, but is to be branded with the strong political imprint. Conclusions of this paper are as follows.First of all, the traditional GDP-based performance assessment called promotion tournament significantly distorts the firms’innovation behavior in the jurisdictions. The distortion effect of different types of enterprises is also of the difference. Firms of state-owned, capital-intensive and located in the Midwest regions are more susceptible to promotion tournament. At the same time, official turnovers also significantly reduce the innovation activities within their respective jurisdictions. If local governance environment is worse, on the one hand, which can lead to the more local government intervention to the enterprise, on the other hand will cause the government-enterprise relationship more closely, and the rent-seeking space is also greater, which thereby affecting the independence of enterprises’decision-making, distorting the firms’allocation of innovation resources, and ultimately leading to lower corporate innovation efficiency.Secondly, local governments have strong incentives to intervene local firms because of promotion tournament, which thereby strengthening the possibility of government-enterprise collusion. Therefore, this paper examines the relationship between political connection and corporate innovation behavior based on the government-enterprise relationship. The paper shows that political connection hinders firms’innovation activities, and this negative effect is enhanced the previous three years after political connection is obtained. Our findings shows:Compared to non connected firms, connected firms invest more in R&D activities, but are related to a lower ratio of patent-R&D expenditures, which means a lower political innovation efficiency in connected companies. We excluded other potential competing hypothesis and found that political resources curse theory can explain this phenomenon better. Finally, we further investigated whether patents can help enterprises improve their performance, and the role of political Political in patent-value link. The results show that patent application of non connected firms tend to improve corporate performance(ROE) efficiently in the coming years, thereby further validating the rationality of the political resource curse hypothesis. That is political resources exacerbated extensive business development, is not conducive to improve the quality of economic development.Third, the paper also examines whether the market integration will attenuate the distortion effect of promotion tournament to firms’ innovation behavior. The paper shows that market integration can weaken the local government’s intervention to enterprises within their jurisdictions, embodied in market integration process can weaken the governments’ impact on local firms’innovation activities, which is derived from the pressure of government officials’ performance request and officials turnovers. The paper also examines whether market integration can reduce the negative effect of political resources to enterprise innovation. The results show that the market integration process can reduce the effect of political connection impeding innovation activities, thus confirming the case if the institutional environment is improved, the curse effect of corporate political resource will be weakened.In conclusion, no matter from the perspective of promotion tournament itself or the government-enterprise relationship, this paper is confirmed that the market integration process can squeeze out the distorting effect of promotion tournament to enterprise innovation behavior. Firms’innovation behavior is not a pure investment activity itself, but is to be branded with the strong political imprint, highlighting the political logic of Chinese firms’innovation in the economic transition.