Pursuing Long-Term Benefits or Short-Term Benefits: A Research on the Impact of Corruption on Enterprise Innovation and Rent-Seeking under Competitive Pressure

Xu Chen; Sun Yuanxin

doi:doi:10.16538/j.cnki.fem.2018.11.010

Summary

During the period of Chinese economic transformation and upgrade, how to help the vast majority of Chinese enterprises get out of the low-end of the global value chain and maintain long-term competitive advantages is a problem that needs to be solved urgently. A key to solve this problem is to encourage enterprises to get rid of short-sighted and short-term benefits. In addition to placing our hopes on the changes of enterprises themselves, policymakers of the government should also abolish the disadvantages and create an institutional environment that encourages enterprises to focus on long-term development. As far as we know, what kind of institutional arrangements can guide Chinese enterprises to pursue long-term strategies and abandon short-sighted behaviors remains unclear. Given the above considerations, this paper takes innovation and rent-seeking as symbols of long-term and short-term strategies respectively, and uses different empirical methods to examine how the degree of corruption as an important institutional environment changes the innovation and rent-seeking decisions of Chinese enterprises under competitive pressure. Based on the data of World Bank China-enterprise survey, this paper uses control function approach to solve the endogeneity in regression models and then runs tobit models. In order to use this method, we need to add additional exogenous variables as instruments. According to the theory and related literature, we choose the labor productivity data by industry from Japan, Korea and the United States as instrumental variables.This paper finds that anti-corruption can lead enterprises to choose long-term oriented strategies but require some prerequisites. The main conclusions are as follows: （1） Enterprises increase innovation investments and rent-seeking expenditures simultaneously under competitive pressure. （2） Anti-corruption not only reduces rent-seeking expenditures of enterprises, but also results in a significant crowding-out effect, which means less investments in innovation. A further empirical test of this paper finds that resource misallocation caused by the lag of marketization reform is the main cause of the crowding-out effect. The results are consistent with the previous ones after we conduct several robustness checks by testing the reliability of replacing missing R&D values with zeros or using fractional response regression to reestimate our models.The conclusions of this study highlight the strategic significance of the market in determining the allocation of resources and provide a strong evidence for China’s anti-corruption policies. Moreover, the conclusions provide important reference values for strategic decision-making of Chinese enterprises. Firstly, our findings show that in order to guide enterprises to form a long-term strategic development concept, it is necessary to improve two or more related institutional environments at the same time. Anti-corruption avoids enterprises to pursue short-term benefits, besides which it is also essential for the government to promote the process of marketization, especially to play the role of market in resource allocation and to relieve the misallocation between credit supply and financing demand. Secondly, our findings confirm that the construction of anti-corruption mechanisms plays an important role in restraining corporate short-sighted behaviors. Specifically, policymakers can reduce the influence of government officials on resource allocation by narrowing their discretion. They can also circumvent the dark side of political connections by reducing government intervention in microeconomic activities, or root out rent-seeking by increasing illegal costs. Finally, corporate managers should establish correct values, and bear in mind that improving the ability of independent innovation is the golden key to maintain long-term competitive advantages. Enterprises can enhance the ability of independent innovation through attracting foreign high-tech talents, cooperating with research institutes, and establishing overseas R&D institutions.