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How Can Local Policy Uncertainty Encourage Firm Innovation: A Competitive Advantage Channel*

How Can Local Policy Uncertainty Encourage Firm Innovation: A Competitive Advantage Channel* Exploring the turnover of city heads in China, I find that state‐owned enterprises (SOEs), which possess competitive advantages (especially resource‐based) due to innate government connections, significantly increase innovation compared with non‐SOEs when local policy uncertainty heightens. In particular, when the turnover of city heads occurs, SOEs are able to obtain a larger amount of external financing at lower costs than non‐SOEs. Additionally, SOEs that file invention patents at the height of local policy uncertainty have better product market performances. My findings indicate that heightened local policy uncertainty enables firms with innate government connections to explore first‐mover advantages through innovation activities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Journal of Financial Studies Wiley

How Can Local Policy Uncertainty Encourage Firm Innovation: A Competitive Advantage Channel*

Ni, Xiaoran
Asia-Pacific Journal of Financial Studies , Volume 52 (1) – Feb 1, 2023
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28 pages

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Publisher
Wiley
Copyright
© 2022 Korean Securities Association
ISSN
2041-9945
eISSN
2041-6156
DOI
10.1111/ajfs.12411
Publisher site
See Article on Publisher Site

Abstract

Exploring the turnover of city heads in China, I find that state‐owned enterprises (SOEs), which possess competitive advantages (especially resource‐based) due to innate government connections, significantly increase innovation compared with non‐SOEs when local policy uncertainty heightens. In particular, when the turnover of city heads occurs, SOEs are able to obtain a larger amount of external financing at lower costs than non‐SOEs. Additionally, SOEs that file invention patents at the height of local policy uncertainty have better product market performances. My findings indicate that heightened local policy uncertainty enables firms with innate government connections to explore first‐mover advantages through innovation activities.

Journal

Asia-Pacific Journal of Financial Studies – Wiley

Published: Feb 1, 2023

Keywords: Local Policy Uncertainty; Firm Innovation; Competitive Advantage; Government Connection; State‐owned Enterprises

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