Finance,institutions, and innovation activities in China |
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| Institution: | 1. Graduate School of Economics, Kyoto University, Yoshida-honmachi, Sakyo-ku, Kyoto, 606-8501, Japan;2. Faculty of Foreign Studies, The University of Kitakyushu, 4-2-1, Kitagata, Kokuraminami-ku, Kitakyushu, 802-8577, Japan;1. University of Sharjah, UAE;2. Istanbul Medeniyet University, Istanbul, Turkey;3. Nam?k Kemal University, Tekirdag, Turkey;1. Professor of Economics, School of Economics and Business, University of Sarajevo, Trg Oslobodjenja A.I. 1, 71000 Sarajevo, BiH;2. Professor of Politics and Society, University College London, Gower Street, London, WC1E 6BT, London, United Kingdom;1. Institute for Structural Research (IBS), Warsaw, Poland;2. IZA, Bonn, Germany;3. Faculty of Economics, University of Warsaw, Warsaw, Poland;1. BETA CNRS INRAE, University of Lorraine and University of Strasbourg and CleRMa;2. Université Clermont Auvergne, F-63000, Clermont-Ferrand, France;1. China Financial Policy Research Center, School of Finance, Renmin University of China, No. 59 Zhong Guan Cun Street, Haidian District, Beijing, 100872, China;2. School of Finance, Renmin University of China, No. 59 Zhong Guan Cun Street, Haidian District, Beijing, 100872, China |
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| Abstract: | Using novel firm-level micro-panel data in China from 2000 to 2009 and data on institutional factors, we study which funding sources effectively finance firm innovation activities in China and how the effectiveness of funding sources varies according to the quality of institutions. We show that institutional factors impact the effectiveness of each funding source in different ways. First, when property rights are better protected against the risk of expropriation by the government, internal financing from net profit—namely, the reinvestment of profit—is more important in financing firm innovation activities. Second, as contracts are enforced more reliably, trade credit finance and bank finance play larger roles in financing firm innovation activities. |
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| Keywords: | China Finance Innovation activities Institutions |
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