Abstract:     As the largest transition economy, China has observed significant changes in its institutional environment with the adoption of pro-market reforms whereby its regulatory framework is rearranged to improve market functioning. Pro-market reforms have always been regarded as an "elixir" to solve the innovation problem of China. However, more and more evidence indicate that the positive effect of pro-market reforms on innovation is not unchanged, while excessive pro-market reforms tend to have a negative impact on corporate innovation through the mechanisms of market competition and government competition. On the one hand, excessive pro-market reforms exacerbate market competition intensity, trigger vicious competition, and force firms to invest more resources and energy to solve the problem of survival, which will defeat corporate innovation enthusiasm. On the other hand, excessive pro-market reforms make competition among local governments out of control, change the investment tendency of local governments, exacerbate the agency problems between government and firms, distort market mechanisms, and cause "double failure" of government and market, which curbs corporate innovation enthusiasm. Therefore, pro-market reforms can be viewed as a "double-edged sword" for corporate innovation. It is necessary to examine the specific effect of pro-market reforms on corporate innovation within the logic of dual competition.On this basis, this paper used the logic of dual competition and the institutional theory to investigate how pro-market reforms affect corporate innovation investment and the subsequent innovation efficiency. We tested our hypotheses using a dataset of 30 provincial-level regions in China from 2008 to 2019. We took the total marketization index of China′s provincial-level regions as the pro-market reforms degree. Then we used the regional R&D capital stock and the total number of patents as the innovation input and output respectively, and calculated the ratio as innovation efficiency. Our empirical results indicated three main conclusions. First, pro-market reforms have a significantly positive effect on corporate innovation input at the regional level, that is, as pro-market reforms deepen, firms′ innovation input will continue to increase. Second, pro-market reforms have a significantly inverted U-shaped impact on corporate innovation efficiency. This means that moderate pro-market reforms are beneficial to maximizing innovation efficiency; excessive pro-market reforms will trigger a negative effect on dual competition, which will inhibit the innovation efficiency. Third, pro-market reforms, as fundamental institutional changes, have a differentiated effect on innovation input and innovation efficiency, and the origin is that institutional changes have the bridge effect on innovation and competition.This paper will contribute to the literature in three ways. First, this paper has broken the research barrier that limits on a micro perspective, and integrated the market competition logic and the government competition logic to comprehensively examine the complex effects of dual competition caused by pro-market reforms to enrich the research on competition. Second, following the dual competition logic, this paper showed the potential "dark side" of pro-market reforms by revealing a series of over-reform problems, which expands the scope of pro-market reforms. Third, adopting institutional theory, this paper explained the relationship between pro-market reforms and innovation by taking institutional change as the "pivot" to connect innovation and competition, thus expanding the research scope of institutional theory into the field of innovation.This paper proposed the following policy recommendations. First, comprehensively deepening pro-market reforms is not always beneficial to innovation. A huge difference exists among provinces of China which are caused by the imbalance of regional economic development and the uneven progress of pro-market reforms. Therefore, the government needs to clarify the regional development situation, grasp the reform progress reasonably, and deploy reform work according to local conditions. Second, market competition and government competition in the pro-market reform process has a dual effect. Local governments should always control the government competitive intensity within a reasonable range, then actively coordinate the contradiction between government and enterprises. Meanwhile, local governments also need to pay attention to maintaining market stability, prevent vicious competition, and improve relevant policies to ensure the effectiveness of pro-market reforms. Third, although firms cannot control the progress of pro-market reforms, they still need to use benign market competition and coordinate the relationship between the government and themselves to promote the transformation of innovation efficiently and strive to become the one who walks at the forefront of the times in the new era.

Key words: pro-market reform, innovation input, innovation efficiency, market competition, government competition