Government Support and Cross-Border Innovation : A Quasi-Experiment in China

Governments want firms to innovate new processes and products not only within their countries, but also across national boundaries. Many countries have initiated policies to support firm's global operations and innovation in other countries (cross-border innovation). How does government support influence emerging-market firm's cross-border innovation? Through the conceptual lens of slack resources, this study investigates the role of government support in firm's inventive activities in an uncertain, competitive global market. This study examines Chinese firms' patent filing in the U.S. under the enactment of the "innovative cities" policy. We apply a generalized difference-in-differences (DiD) technique to this staggered quasi-experimental setting and find that government support through the policy stimulates firm's cross-border innovation. We further show that firms with higher R&D capacity take better advantage of government support. In addition, we show that government support leads to a shift between firm's exploratory and exploitative innovation. Taken together, this study extends our understanding of slack from internal resources to government support in the context of global operations and bridges the gap between slack resources and cross-border innovation strategy. Findings of the study suggest that government actions that improve the ecosystem of innovation in one country also strengthen firm's innovation and competitiveness overseas