TITLE:
Industry-Finance Integration and Corporate Innovation
AUTHORS:
Yu Meng
KEYWORDS:
Industry-Finance Integration, Corporate Innovation, Agency Costs, Financing Constraints, Operating Risk
JOURNAL NAME:
Modern Economy,
Vol.11 No.2,
February
10,
2020
ABSTRACT: This article takes China’s A-share listed companies
from 2008 to 2017 as a sample to study the relationship between
industry-finance integration and corporate innovation, and discusses the
differential impact of industry-finance integration on corporate innovation
under different agency costs and financing constraints. In addition, in order
to clarify the path that the combination of industry and finance affects
corporate innovation, this article further explores the mechanism of the
combination of industry and finance on corporate innovation. The study found
that at this stage, the integration of domestic and domestic financing has a
significant “crowding out” effect on corporate innovation, and this “crowding
out” effect is even more pronounced in companies with higher agency costs and
greater financing constraints. After controlling for endogeneity and performing
a robustness test, the conclusion still holds. Further mechanism inspections
have shown that the combination of production and finance increases the
business risk of the enterprise, which in turn crowds out innovation. The above
research conclusions show that at the current stage, the combination of
industry and finance of listed companies in China has not effectively achieved
the long-term strategic goals of the enterprise, but has increased the business
risk of the enterprise, inhibited the innovation investment of the enterprise,
and caused the real economy to face a situation of “depreciation to reality” threat.
This article provides micro-level evidence for China’s domestic financial
integration practice, and has certain reference significance for how regulatory
authorities can guide the integration of industry and financial integration and
how Chinese enterprises can prevent and control financial risks. The main contribution of this article is to combine the institutional
background of China’s economic transformation and consider the differences
between the internal and external environments facing different companies. The
empirical analysis tests the relationship between the combination of industry
and finance and corporate innovation. In addition, the role of this
relationship is further studied from the perspective of operational risk, which
provides a certain decision-making reference for Chinese enterprises on how to
improve the effectiveness of the combination of industry and finance.