Which Strategy Maximizes the Innovation Output of Firms in China: Using a Control or an Entrepreneurial Sphere?

  • 05 09, 2022
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  • Author:Chao Zhang, Jiancheng Guan, Lutao Ning


Innovation is a key stimulus for firms’ survival and growth. However, many of Chinese firms fail to make it due to the lack of adequate financial resources. Previous studies have been deeply investigated the relationships between financial resources and firms’ innovation performance. This paper extends such stream of the literature by focusing on a vital question for entrepreneurs: how to maximize innovation output under resource constraints. Based on an extensive dataset collected at Zhongguancun Science Park (ZSP), Beijing, China, over the period 2011-2014, this paper discusses whether entrepreneurs should pursue extra public funding (control sphere). Besides, this paper also provides empirical evidence for entrepreneurs to make proper choices about resource allocation (entrepreneurial sphere). This paper hypothesizes that enterprises allocating resources by using the entrepreneurial sphere, rather than the control sphere, can advance innovation output. To test our hypothesis, this paper adopts a dynamic panel model estimated by a bootstrap-based bias correction procedure. We find that, in advancing innovative performance, the entrepreneurial sphere is more effective than control. Indeed, at the overall level, the crowding out effect merely offsets the additionality effect when enterprises pursue extra public funding. Therefore, the control sphere does not play an essential role in advancing innovation performance. Thus, extra efforts in that direction will turn out to be in vain. Consequently, as a policy implication we claim that entrepreneurs should spend more time and energy on productive activities rather than lobbying and rent-seeking. In addition, managers should allocate resources properly for internal knowledge creation, external knowledge absorption and S&T activities.


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