- financial constraint,
For a developing country undergoing economic transition like China, innovation plays an important role in optimizing the industrial structure and in improving economic growth. In general, due to the risk adverse behavior of the common investors, innovation activities often face a greater financial constraint compared to other routine activities of the firm. This study aims at examining the effect of financial constraints on firm innovative performance in the Chinese economic context. It further examines the moderating effects of state ownership and institutional environment on the relationship between financial constraints and innovative performance, using a firm level data set from 25 representative Chinese cities in 2012. The empirical results show that financial constraints do impede firms¡¯ innovative performances. Although state-owned equity has no direct effect on innovative activities, the negative effect of financial constraints on innovative performance is smaller for controlling state-owned companies than for non-state-owned counterparts. Moreover, sound institutional environment directly promotes firms' innovative activities; however, an inferior institutional environment alleviates the negative effect of financial constraints on firm innovative performance.
Copyright © 2015, Academy of Management
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