State Ownership And Innovation: The Relative Merits Of Local And Central State Judged By Innovation Performance

This paper compares the innovation performance of state-owned firms owned by different levels of government, with that of privately owned firms. Analysis of a 116-firm panel dataset for the Chinese solar photovoltaic industry from 1999 to 2015 suggests that government's financial support increases the quantity of innovation outputs. However, the efficiency in utilising the financial resources is determined by the effectiveness of agency relationships. Applying agency theory to the Chinese politico-economic context indicates that innovation quality depends on length and complexity of agency chains, engagement of monitors, and the tenure of managers. By using forward citations and proportion of patents in active use, two measures of innovation quality that are more valid and reliable than patent counts, our study finds that municipally owned firms are superior in terms of innovation productivity to those under central ownership, and comparable to private firms.