Science Research Management

Science Research Management ›› 2021, Vol. 42 ›› Issue (7): 40-49.

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The administrative approval system reform and innovation investment of private enterprises

He Xiaobin1, Liu Jiankun1, Zhang Yunliang2   

  1. 1. School of Social Science, Tsinghua University, Beijing 100084, China; 
    2. Research Institute of Social Development, Southwestern University of Finance and Economics, Chengdu 611130, Sichuan, China
  • Received:2020-04-28 Revised:2020-07-29 Online:2021-07-20 Published:2021-07-19

Abstract:     The power of controlling and redistributing key economic and social resources mainly is maintained by the administrative approval system in China. The restraining effect of the system on the market economy is apparent, which hinders the further development of market-oriented reform. This problem has motivated the central government to carry out a large-scale reform of the administrative approval system since 2001. During the reform, local governments′ service functions have improved significantly by modifying, cancelling and delegating approval items, simplifying approval procedures, and shortening approval time. As an important institutional innovation to adjust the relationship between government and market, the administrative approval system reform provides an opportunity to examine the relationship between the administrative environment and the innovation investment decision-making of private enterprises. 
     This paper examines effects of the administrative approval system reform on the innovation investment of private enterprises drawing on the data from the Chinese Private Enterprise Survey in 2010. It was found that the establishment of city administrative approval centers significantly facilitated the innovation investment of Chinese private enterprises. This relationship remains after a series of robustness and endogeneity checks, including the analysis with Propensity Score Matching and adding more omitted variables. In addition, this effect was only presented in enterprises whose owners did not have government working experiences, and in enterprises located in industries with lower entry barriers and in the eastern area of China. Further analyses revealed that relieving the financial constraints, reducing government interventions, and improving the perceived institutional environment and social status of owners were the mediating mechanisms that played between the administrative approval reform and innovation investment of private enterprises. Therefore, this study suggests the related government departments further promote the administrative reforms and create a good atmosphere for the Innovation investment of Chinese private enterprise. 
     The research contributions of this paper are in the following three aspects: Firstly, this paper could deepen the understanding of the relationship between institutional environment and innovation investment. Compared with the existing literature which mainly focuses on the overall institutional environment or certain element of institutional environment, such as legal environment, this paper focuses on the administrative environment that is another important element of institutional environment, and provides a new theoretical interpretation for the process of decision-making on innovation investment; Secondly, this paper could enrich the literature concerning the impact of the administrative approval system reform. Previous studies have mainly focused on summarizing the experiences and lessons of the administrative environment reform. While there were some literatures examining the impact of the administrative approval system reform on the production and operation activities of enterprises, the impact on enterprise Innovation investment is rarely touched. This paper provides empirical evidence on the positive relationship between the administrative approval system reform and enterprise innovation investment. Thirdly, by examining the different effects of the administrative approval system reform on innovation investment based on entrepreneurs′ political experiences, the level of industry entry barrier and the region where enterprises are located, this paper shows that the effects of the administrative approval system reform on the Innovation investment of private enterprises are not homogeneous, which has practical implications for improving the policy design and marginal benefits of policy making in China. 

Key words: private enterprise, innovation investment, administrative environment, administrative approval system reform