Industrial Policy, Political Connection and Innovation Efficiency

Purpose/Significance The world economy is undergoing a profound transformation, and the impact of industrial policies on enterprise innovation has been paid close attention by the industry and academia. However, the function and specific manifestation of industrial policy in enterprise innovation need further discussion.Design/Methodology This article uses the data of Shanghai and Shenzhen A-share listed companies during the "12th Five-Year Plan" period (2011～2015) to explore the effects of industrial policies and political connections on the efficiency of corporate innovation output. Findings/Conclusions The statistical analysis shows that: (1) Industrial policy incentives have boosted the patent output of enterprises supported by industrial policies; (2) However, after adding political related factors, the above-mentioned functions are weakened; (3) The discussion of the impact mechanism shows that financial interest incentives can promote enterprises to increase R&D investment. However, political connections will weaken the positive effect of industrial policies on R&D investment and reduce the patent output elasticity of R&D investment. The research in this article provides new insights into how the government can tap the positive effects of industrial policy measures, reduce the negative impact of non-market factors such as political linkages, and improve the effectiveness of industrial policies.