Abstract:    The service industry, as one of the most critical support industries in the Chinese economic growth, keeps reforming and innovating to seek sustainable development. To promote enterprise innovative development, the Chinese government has issued innovation policies as a tool to affect enterprise innovation processes, and as a result to improve the enterprise performance. Although it is common to investigate how innovation policy affects enterprises, existing studies often focus on universal enterprises and few of them pay attention to the service enterprises. How innovation policy affects service enterprise performance is still unclear and need to be ascertained. Understanding how innovation policy affects service enterprise performance will benefit local governments towards better innovation policies with more specific purposes in the future, which in turn facilitate innovation and development of those service enterprises.As innovation comes with risk, enterprises tend to use different innovation decision-making strategies according to different government policies. This leads the enterprises to develop different levels of innovation capabilities, which poses impacts on the enterprise performance. To this end, we introduced the innovation capability as a mediator variable to build a framework, composed of a chain of "innovation policy-innovation capability-enterprise performance". Within this framework, we further divided variables into multiple dimensions. On one hand, each of existing literature investigates one or some of innovation policy instruments in terms of their impacts on enterprise performance. Alternatively, this paper considers innovation policies as a general concept by using the Rothwell and Zegveld′ framework of government innovation policies. Therefore, we included three kinds of policy mixes: supply-side, demand-side and environment innovation policies. Theoretically, these three innovation policies differ in the mechanisms how they impact the enterprises. One the other hand, compared to manufacturing enterprises, service enterprises produce intangible outputs and deliver their service in the premise of the producer and consumer interaction. To emphasize the unique innovation characteristics in service enterprises, this paper focused on both the technological and non-technological forms: product innovation and service innovation. As a result, the product innovation capability and service innovation capability were introduced as mediator variables between the three kinds of policies and enterprise performance.Following the theoretical analysis, this paper proposed three categories of research hypotheses: (1) each of the supply-side, demand-side and environment innovation policies has a significantly positive impact on enterprise performance; (2) each of three kinds of policies has a significantly positive impact on both product innovation capability or service innovation capability; and (3) each of product and service innovation capabilities has a significantly positive impact on enterprise performance. These hypotheses were then tested by the empirical research paradigm. Accordingly, the survey data were collected from 229 representative service enterprises in the Changsha City. The five-point Likert-type scale was used to measure all the latent variables in the survey data, whose measurement validity was tested using the common method bias, validity and reliability analyses. Finally, the partial least squares structural equation model (PLS-SEM) analysis was used to test relationships between variables and analyze mediation and moderation effects.The results show three kinds of innovation policies positively affect enterprise performance, but in different ways. The main findings are summarized as follows:Firstly, the supply-side innovation policy has a significantly positive, direct impact on enterprise performance (with a path coefficient of 0.264), a significantly positive, direct impact on product innovation capability (0.234) and a significantly positive, direct impact on service innovation capability (0.207). This suggests that the supply-side innovation policy impacts enterprise performance by both direct effect and innovation capability-mediated indirect effect. According to the theory of innovation policy, the supply-side innovation policy can provide innovative resources including capital, talents and technologies and other innovative elements. Our observations show that, the supply-side innovation policy can 1) promote service enterprises to invest in product innovation and service innovation, and 2) boost the overall development of enterprises in other ways.Secondly, the environmental-side innovation policy has a significantly positive, direct impact on service innovation capability (0.215), but has no significant, direct effect on enterprise performance nor product innovation capability. However, the total indirect effect of the environmental-side innovation policy on service enterprise performance is positive and significant (0.093). This finding denotes that environmental-side innovation policy can affect enterprise performance through impacting service innovation capability. In the practice of innovation management, the environmental-side innovation policy can contribute to build a better atmosphere in the society to promote interactions and communications between service producers and consumers, thus improving the opportunities to optimize the service delivery. It also highlights that, from another aspect, the improvement of product innovation of service enterprises depends more on the supply-side innovation policy.Thirdly, the demand-side innovation policy has limitedly direct impacts on enterprise performance, product innovation capability or service innovation capability. Therefore, the moderation effects of the demand-side innovation policy were further tested. Our results show that 1) demand-side innovation policy positively moderates the relationship between the supply-side policy and product innovation capability (0.168) and 2) the relationship between the environmental-side policy and service innovation capability (0.345). In theory, the demand-side innovation policy plays an important role in expanding the market. In practice, launching a demand-side innovation policy will increase the business volume and offer an opportunity to improve both product innovation capability and service innovation capability.In summary, this paper has investigated the impact of innovation policies on service enterprise performance with a focus on the service industry innovation. In the service industry, differences were found among the three innovation policies in mechanisms how they impact enterprise performance. These findings will be a useful guidance for the governments to formulate targeted innovation policies in the future to serve different purposes.

Key words:  innovation policy, innovation capability, enterprise performance, service enterprise, product innovation, service innovation