Why do Chinese corporate innovations emphasize quantity over quality? A new perspective on R&D capital market distortions

Abstract

Purpose

This study investigates the heterogeneous impact of R&D capital market distortions (CMDs) on the quantity and quality of innovation in Chinese firms by exploring key pathways from a dual-arbitrage perspective.

Design/methodology/approach

Using data from Chinese A-share listed companies (2015–2021), we employ a multidimensional fixed effects model to validate the research hypotheses. Under the Systems of National Accounts (SNA, 2008) framework, we use the Bureau of Economic Analysis method to estimate enterprise R&D capital stock and the Cobb-Douglas production function to estimate R&D CMDs.

Findings

Results show that R&D CMDs drive firms toward strategic innovation, emphasizing quantity over quality. Policy arbitrage, including policy catering and rent-seeking, emerges as a pivotal mechanism under R&D CMDs, encouraging firms to prioritize quantity over quality in innovation. High-technology firms and those in the decline stage are more inclined to spearhead strategic innovation within the context of R&D CMDs.

Practical implications

These findings help policymakers promote high-quality innovation in Chinese enterprises by enhancing patent review mechanisms and shifting policies from quantity-driven to quality-oriented goals.

Originality/value

This study enriches the research on factor market distortions and innovation in emerging markets from the perspective of R&D CMDs, based on the “emerging + transitional” comprehensive framework. Unlike previous studies, which generally use enterprise R&D expenditure flow data, we apply the theory of R&D capitalization accounting to the micro-enterprise level under the SNA (2008) framework, enhancing the accuracy of R&D CMD estimations.

Citation

Pang, S., Hua, G. and Yan, Z. (2024), "Why do Chinese corporate innovations emphasize quantity over quality? A new perspective on R&D capital market distortions", China Finance Review International, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CFRI-04-2024-0160