The Impact of Technology Identification Policy on Firm Innovation Evidence from China

Using the firm level data on companies listed on China’s A-shares market from 2006 to 2017, this paper applies a difference-in-differences (DID) empirical method to test whether the exogenous state policy in China used for identifying firms as either “high-tech” or “frontier technology” can enhance their innovative capabilities. The findings of this paper are shown as follows: (1) multiple robustness tests confirmed that the state technology identification policy does improve the total number of patent applications as well as the number of patent inventions applications; (2) subsidies and cash flow are two important channels through which this policy affects a firm’s innovation capabilities; (3) this exogenous state policy has a more prominent and positive effect on innovation capabilities for those firms located in regions with a higher taxation burden and relatively more developed products and factor markets. The empirical results presented in this paper have far-reaching policy implications for China’s state innovation policies