Abstract:

  Characterized by high investment, high risk and positive externality, innovation activities are more sensitive to changes in resource conditions and market environment. When local governments invest a large number of resources to support firm innovation activities in the region, a close relationship is formed between the two. By translating central decisions into local operational texts, policy goals and decision-making actions of local governments have a significant impact on regional innovation entities. Local governments often face multiple task objectives, thus need to weigh and make trade-offs. Although technological innovation has always been a key aspect of economic development and an important field of policy formulation, the focus of local governments′ attention may vary in different periods. Existing studies has conducted rich explorations on the formation and changes, conflicts and competition, allocation and configuration of local government attention, but there is a lack of research that takes local government attention as the point of penetration for understanding local government policy priorities as well as resource layout and empirically tests its innovative effect from this perspective. 

       At the practical level, government departments at all levels use various means to unify policy objectives. Focusing on local government attention can better reflect the goals and policy guidance of local governments, and more comprehensively explore the impact of local governments on firm innovation. From the perspective of limited attention, this paper studied the influence of local government attention allocation on firm innovation activities using measures based on local governments′ work reports and data of listed firms on A-share market. It was found that: increase in local government attention drives firms′ innovation activities, and enhances firm innovation input, innovation output as well as innovation quality significantly. Besides, both substantive innovation and strategic innovation can be enhanced when local government attention increases. However, innovation driven by local government attention tends to be asymmetric between exploitative innovation and exploratory innovation. It positively affects the latter while negatively affects the former. Further analysis illustrated that compared with eastern areas and central areas, the promoting effect towards firm innovation in western areas is limited. Meanwhile, while preferential taxation is a marked channel, government subsidy is not. This paper provides theoretical and practical support for analyzing driving forces of firm innovation activities as well as economic influence of increase in local government attention. Based on the studies, some policy suggestion and management inspiration are given to support and advance innovation development strategy to better utilize the role of local government.For local governments, they should firstly provide sufficient and sustained attention to the innovation field to avoid disrupting firm innovation activities caused by uncertainty stemmed from cyclical fluctuations. Secondly, they should correct policy target deviations, optimize institutional mechanisms, and refine innovation policies designs to fully leverage the role of local governments in improving resource allocation efficiency and serving the innovation needs of firms when local government attention increases, in order to avoid the "misplacement, offside, vacancy" of the local governments from exacerbating the mismatch of innovation resources and prevent the tendency of "short-sightedness" and "arbitrage" in innovation activities driven by local government attention. Third, they should also promote the innovative infrastructure construction, improve the intellectual property protection system, optimize the investment and financing functions of the capital market, therefore unblock the investment, financing and innovation channels of the real economy while continuously boosting the confidence of market entities, so as to give full play to the incentive role of positive signals brought by local government attention.For firms, they should firstly actively explore innovation, continuously improve innovation efficiency while increasing innovation investment, fully utilizing internal and external resources to improve innovation quality. Secondly, with the goal of achieving high-quality development and adhering to firms′ long-term strategy as the guidance, they should continuously improve their innovation strategies, fully identify policy opportunities, effectively utilize external support to overcome difficulties, and take a good grasp of the relationship between exploratory innovation and exploitative innovation. Thirdly, they should continuously optimize innovation decision-making, improve governance level, strengthen their internal supervision, promote entrepreneurial spirit and make good use of the opportunities for improving the innovation environment and optimizing innovation conditions brought by the increase in local government attention, to avoid strategic innovation driven by short-term preferences from interfering substantive innovation.

Key words: local government, limited attention, firm innovation, heterogeneity, impact channel