Abstract:     As the main strategy of leading economic development currently, the supply-side structural reform is implemented, throughout innovation, to achieve economic transformation. De-capacity is one of the main tasks of the supply-side structural reform. Therefore, it is of great significance to investigate the impact of de-capacity on innovation for achieving high-quality economic development. However, existing literatures about de-capacity only explore the measures of cutting overcapacity and investigate the causes of cutting overcapacity difficultly, which are lack of the discuss about economic consequences of de-capacity on micro firm level. 
    At present, China′s traditional investment-driven force of economic growth has been gradually weakening, while new economic growth drivers have not yet been effectively formed. The contradiction of overcapacity in many industries is prominent. What is more, the innovation level of enterprises is not high enough. The supply-side structural reform is implemented to achieve the transforming of economic development pattern and the converting of economic growth drivers, which means that this Reform needs to be deepened not only by cutting overcapacity simply, but also attaining de-capacity and shifting innovation-driven development synchronously. Capacity occupies production resources in micro enterprises, leading to crowd out innovative activities. Therefore, de-capacity releases these occupied resources, which alleviates the crowding-out effect of capacity on innovation, so that R&D investment can be increased due to the reflow of resources to innovation activities. Under the policy environment of encouraging innovation and entrepreneurship, enterprises are more motivated to use these resources released by de-capacity for innovation activities.
    This paper takes annual data of China′s A-share listed companies from 2008 to 2019 as samples, and investigates the impact of de-capacity on innovation. The result documents a significantly positive relationship between de-capacity degree and R&D investment growth rate, which means de-capacity has a promotion effect on innovation. Besides, this promotion effect becomes stronger in enterprises with higher financing constraints, less government subsidies and less cash flow. Using the national policy of de-capacity as an exogenous shock to alleviate endogenous problems, the conclusions are basically unchanged. Further analysis shows that the implementation of the innovation-driven development strategy and the supply-side structural reform had enhanced the promotion effect of de-capacity on R&D investment. Finally, the impact of de-capacity on R&D investment become more obvious in provinces with lower economic growth speed and higher unemployment rate. In addition, in order to ensure stable economic growth and lower unemployment rate, governments have incentives to encourage state-owned enterprises to increase R&D investment after cutting capacity.
     The contribution of this paper may lie in the following aspects. Firstly, this paper expands literatures about the microeconomic consequences of de-capacity, and provides theoretical support for the advance of the supply-side structural reform and economic transformation. Secondly, this paper argues that capacity occupies productive factors so that de-capacity provides resource basis for innovative activities, which is consistent with the resource dependence theory and extends the application boundary of the resource base view. Finally, this paper investigates the differentiation effect of de-capacity on innovation based on economic growth and employment, which deepens research about the functional roles of governments in the realization of economic transformation.

Key words:  de-capacity, corporate innovation, supply-side structural reform, crowding-out effect