State-owned enterprises shareholders and innovation of private enterprises: Evidence from China

Innovation is the main driving force that enables private enterprises to transform and upgrade. Moreover, it can boost firms' market competitiveness. As an important form of mixed-ownership reform, the relationship between state-owned enterprises shareholders (SOEs shareholders) and private firms' innovation has been widely followed. We empirically studied the impact of SOEs shareholders on private firms' innovation using financial data on nonfinancial private enterprises listed on the Shanghai and Shenzhen A-shares market from 2007 to 2019. The findings indicate that SOEs shareholders improve the innovation inputs and outputs of private firms. Heterogeneity analyses show that the facilitating effect of SOEs shareholders on private firms' innovation is highly pronounced in growth stage firms, high-tech industries and macroenvironments with great economic policy uncertainty. Moreover, the resource and governance effects of SOEs shareholders on private enterprises' innovation are fully discussed. In terms of the resource effect, SOEs shareholders reduce the level of financial constraints and weaken the dependence of innovation on the role of liquidity reserves of financial assets. This outcome is mainly reflected in trade credit financing and equity financing. In terms of the governance effect, the governance mechanism of SOEs shareholders, which affects private enterprises' innovation, has not played an effective role at this stage. An expanded analysis shows that SOEs shareholders effectively enhance private firms' performance. Therefore, the government should attach importance to the resource advantages brought by SOEs shareholders. We helped to clarify the relationship and mechanism between SOEs shareholders and private firms' innovation. We also provided empirical evidence that shows that private enterprises can participate in mixed ownership reforms and achieve high-quality development.