1932

Abstract

Technological innovation is critical to a country's economic development and a firm's long-term success. This article reviews the recent literature that links institutions and innovation. Specifically, we focus on five aspects of the linkage. First, we discuss the literature that explores how the culture of a society or a corporation influences the process, features, and outcomes of innovation activities. Second, we review papers that focus on the role of demographic characteristics in innovation. Third, we describe studies examining the relation between market development and firms’ incentives as well as their ability to engage in innovative investments. Fourth, we discuss the literature on how innovation is shaped by a nation's laws and policies. Finally, we review the academic papers regarding the effects of government regulations and policies on innovation activities. Overall, this article aims to provide a synthetic and evaluative review of recent academic research that links various aspects of institutions and innovation. We also provide our views on potential directions for future research in this area.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-financial-032820-083433
2020-11-01
2024-06-18
Loading full text...

Full text loading...

/deliver/fulltext/financial/12/1/annurev-financial-032820-083433.html?itemId=/content/journals/10.1146/annurev-financial-032820-083433&mimeType=html&fmt=ahah

Literature Cited

  1. Acemoglu D. 2010. When does labor scarcity encourage innovation. J. Political Econ. 118:61037–78
    [Google Scholar]
  2. Acharya VV, Baghai RP, Subramanian KV 2013. Labor laws and innovation. J. Law Econ. 56:997–1037
    [Google Scholar]
  3. Acharya VV, Baghai RP, Subramanian KV 2014. Wrongful discharge laws and innovation. Rev. Financ. Stud. 27:1301–46
    [Google Scholar]
  4. Acharya VV, Subramanian KV. 2009. Bankruptcy codes and innovation. Rev. Financ. Stud. 22:124949–88
    [Google Scholar]
  5. Adhikari BK, Agrawal A. 2016. Religion, gambling attitudes and corporate innovation. J. Corp. Finance 37:229–48
    [Google Scholar]
  6. Agarwal V, Vashishtha R, Venkatachalam M 2018. Mutual fund transparency and corporate myopia. Rev. Financ. Stud. 31:51966–2003
    [Google Scholar]
  7. Aghion P, Bloom N, Blundell R, Griffith R, Howitt P 2005. Competition and innovation: an inverted-U relationship. Q. J. Econ. 120:2701–28
    [Google Scholar]
  8. Aghion P, Reenen JV, Zingales L 2013. Innovation and institutional ownership. Am. Econ. Rev. 103:1277–304
    [Google Scholar]
  9. Akcigit U, Baslandze S, Lotti F 2018. Connecting to power: political connections, innovation, and firm dynamics NBER Work. Pap25136
    [Google Scholar]
  10. Akcigit U, Grigsby J, Nicholas T, Stantcheva S 2018. Taxation and innovation in the 20th century NBER Work. Pap24982
    [Google Scholar]
  11. Amore MD, Schneider C, Žaldokas A 2013. Credit supply and corporate innovation. J. Financ. Econ. 109:835–55
    [Google Scholar]
  12. Anelli M, Basso G, Ippedico G, Peri G 2019. Youth drain, entrepreneurship and innovation NBER Work. Pap26055
    [Google Scholar]
  13. Appel I, Farre-Mensa J, Simintzi E 2019. Patent trolls and startup employment. J. Financ. Econ. 133:3708–25
    [Google Scholar]
  14. Atanassov J, Liu X. 2020. Can corporate income tax cuts stimulate innovation. J. Financ. Quant. Anal. 55:141565
    [Google Scholar]
  15. Ayyagari M, Demirgüç-Kunt A, Maksimovic V 2014. Bribe payments and innovation in developing countries: Are innovating firms disproportionately affected. J. Financ. Quant. Anal. 49:51–75
    [Google Scholar]
  16. Baghai RP, Silva RC, Ye L 2017. Bankruptcy, team-specific human capital, and innovation: evidence from U.S. inventors. Work. Pap., Swed. House Finance Res./Eur. Corp. Gov. Inst.
    [Google Scholar]
  17. Bell AM, Chetty R, Jaravel X, Petkova N, Van Reenen J 2017. Who becomes an inventor in America? The importance of exposure to innovation. Q. J. Econ. 134:2647–713
    [Google Scholar]
  18. Bell AM, Chetty R, Jaravel X, Petkova N, Van Reenen J 2019. Do tax cuts produce more Einsteins? The impacts of financial incentives versus exposure to innovation on the supply of inventors NBER Work. Pap25493
    [Google Scholar]
  19. Bellstam G, Bhagat S, Cookson JA 2017. A text-based analysis of corporate innovation Work. Pap., Univ. Colo Boulder:
    [Google Scholar]
  20. Bena J, Simintzi E. 2017. Globalization of work and innovation: evidence from doing business in China Work. Pap., Univ. B. C Vancouver, Can:.
    [Google Scholar]
  21. Bénabou R, Ticchi D, Vindigni A 2015. Religion and innovation. Am. Econ. Rev. Pap. Proc. 105:5346–51
    [Google Scholar]
  22. Benfratello L, Schiantarelli F, Sembenelli A 2008. Banks and innovation: microeconometric evidence on Italian firms. J. Financ. Econ. 90:2197–217
    [Google Scholar]
  23. Bernstein S, Diamond RR, McQuade TJ, Pousada B 2018. The contribution of high-skilled immigrants to innovation in the United States Work. Pap., Stanford Univ Stanford, CA:
    [Google Scholar]
  24. Bernstein S, McQuade TJ, Townsend RR 2017. Does economic insecurity affect employee innovation? Work. Pap., Stanford Univ./Univ. Calif San Diego:
    [Google Scholar]
  25. Bhattacharya U, Hsu PH, Tian X, Xu Y 2017. What affects innovation more: policy or policy uncertainty. J. Financ. Quant. Anal. 52:51869–901
    [Google Scholar]
  26. Bian B, Haselmann R, Vig V, Mauro BW 2017. Government ownership of banks and corporate innovation Work. Pap., London Bus. Sch./Goethe Univ. Frankfurt/Johannes Gutenberg Univ Mainz:
    [Google Scholar]
  27. Bianchi N, Giorcelli M. 2019. Scientific education and innovation: from technical diplomas to university STEM degrees NBER Work. Pap25928
    [Google Scholar]
  28. Bradley D, Kim I, Tian X 2017. Do unions affect innovation. Manag. Sci. 63:72251–71
    [Google Scholar]
  29. Brav A, Jiang W, Ma S, Tian X 2018. How does hedge fund activism reshape corporate innovation. J. Financ. Econ. 130:237–64
    [Google Scholar]
  30. Brown JD, Earle JS, Kim MJ, Lee KM 2019. Immigrant entrepreneurs and innovation in the U.S. high-tech sector NBER Work. Pap25565
    [Google Scholar]
  31. Brown JR, Martinsson G. 2019. Does transparency stifle or facilitate innovation. Manag. Sci. 65:41600–23
    [Google Scholar]
  32. Brown JR, Martinsson G, Petersen BC 2013. Law, stock markets, and innovation. J. Finance 68:41517–49
    [Google Scholar]
  33. Cai J, Chen Y, Wang X 2018. The impact of corporate taxes on firm innovation: evidence from the corporate tax collection reform in China NBER Work. Pap25146
    [Google Scholar]
  34. Cerqueiro G, Hegde D, Penas MF, Seamans RC 2017. Debtor rights, credit supply, and innovation. Manag. Sci. 63:103311–27
    [Google Scholar]
  35. Chava S, Oettl A, Subramanian A, Subramanian KV 2013. Banking deregulation and innovation. J. Financ. Econ. 109:3759–74
    [Google Scholar]
  36. Chemmanur T, Fulghieri P. 2014. Entrepreneurial finance and innovation: an introduction and agenda for future research. Rev. Financ. Stud. 27:11–19
    [Google Scholar]
  37. Chemmanur T, Kong L, Krishnan K, Yu Q 2019. Top management human capital, inventor mobility, and corporate innovation. J. Financ. Quant. Anal. 54:62383–422
    [Google Scholar]
  38. Chemmanur T, Loutskina E, Tian X 2014. Corporate venture capital, value creation, and innovation. Rev. Financ. Stud. 27:82434–73
    [Google Scholar]
  39. Chen Y, Podolski E, Rhee SG, Veeraraghavan M 2014. Local gambling preferences and corporate innovative success. J. Financ. Quant. Anal. 49:177–106
    [Google Scholar]
  40. Chen Z, Liu Z, Serrato SJC, Xu YD 2018. Notching R&D investment with corporate income tax cuts in China NBER Work. Pap24749
    [Google Scholar]
  41. Cheng H, Fan H, Hoshi T, Hu D 2019. Do innovation subsidies make Chinese firms more innovative? Evidence from the China Employer Employee Survey NBER Work. Pap25432
    [Google Scholar]
  42. Cong LW, Howell ST. 2019. IPO intervention and innovation: evidence from China NBER Work. Pap24657
    [Google Scholar]
  43. Cook L. 2014. Violence and economic activity: evidence from African American patents, 1870–1940. J. Econ. Growth 19:221–57
    [Google Scholar]
  44. Cook L, Gerson J. 2019. The implications of U.S. gender and racial disparities in income and wealth inequality at each stage of the innovation process. Washington Center for Equitable Growth Inequality and Mobility Blog July 24
    [Google Scholar]
  45. Cornaggia J, Mao Y, Tian X, Wolfe B 2015. Does banking competition affect innovation. J. Financ. Econ. 115:189–209
    [Google Scholar]
  46. Dang TV, Xu Z. 2018. Market sentiment and innovation activities. J. Financ. Quant. Anal. 53:31135–61
    [Google Scholar]
  47. Derrien F, Kecskes A, Nguyen PA 2018. Labor force demographics and corporate innovation Work. Pap., HEC Paris/York Univ.
    [Google Scholar]
  48. Dimmock SG, Huang J, Weisbenner SJ 2018. Give me your tired, your poor, your high skilled labor: H-1B lottery outcomes and entrepreneurial success NBER Work. Pap26392
    [Google Scholar]
  49. Donges A, Meier JA, Silva R 2018. The impact of institutions on innovation Work. Pap., Univ. Mannheim/Univ Tex./London Bus. Sch:.
    [Google Scholar]
  50. Ederer F, Manso G. 2011. Incentives for innovation: bankruptcy, corporate governance, and compensation systems. Handbook of Law, Innovation, and Growth RE Litan 90–111 Cheltenham, UK: Elgar
    [Google Scholar]
  51. Fang L, Lerner J, Wu C 2017. Intellectual property rights protection, ownership, and innovation: evidence from China. Rev. Financ. Stud. 30:72446–77
    [Google Scholar]
  52. Fich E, Nguyen T, Petmezas D 2019. Uncertainty and corporate innovation: evidence from terrorist attacks Work. Pap., Drexel Univ./Univ Surrey:
    [Google Scholar]
  53. Foley CF, Kerr WR. 2013. Ethnic innovation and U.S. multinational firm activity. Manag. Sci. 59:71529–44
    [Google Scholar]
  54. Fu R, Kraft A, Tian X, Zhang H, Zuo L 2020. Financial reporting frequency and corporate innovation. J. Law Econ. Forthcoming. https://doi.org/10.2139/ssrn.3429228
    [Crossref] [Google Scholar]
  55. Galasso A, Schankerman M. 2015. Patents and cumulative innovation: causal evidence from the courts. Q. J. Econ. 130:1317–69
    [Google Scholar]
  56. Galasso A, Simcoe TS. 2011. CEO overconfidence and innovation. Manag. Sci. 57:81469–84
    [Google Scholar]
  57. Gao H, Hsu PH, Li K, Zhang J 2020. The real effect of smoking bans: evidence from corporate innovation. J. Financ. Quant. Anal. 55:2387–427
    [Google Scholar]
  58. Gao H, Zhang W. 2017. Employment nondiscrimination acts and corporate innovation. Manag. Sci. 63:92982–99
    [Google Scholar]
  59. Greif A, Iyigun MF. 2012. Social institutions, violence, and innovations: Did the Old Poor Law matter? Work. Pap., Stanford Univ Stanford, CA:
    [Google Scholar]
  60. Gu Y, Mao C, Tian X 2017. Bank interventions and firm innovation: evidence from debt covenant violations. J. Law Econ. 60:4637–71
    [Google Scholar]
  61. Guadalupe M, Kuzmina O, Thomas C 2012. Innovation and foreign ownership. Am. Econ. Rev. 102:73594–627
    [Google Scholar]
  62. Hall BH, Lerner J. 2010. The financing of R&D and innovation. Handbook of the Economics of Innovation BH Hall, N Rosenberg 609–39 Amsterdam: Elsevier/North-Holland
    [Google Scholar]
  63. He J, Tian X. 2013. The dark side of analyst coverage: the case of innovation. J. Financ. Econ. 109:3856–78
    [Google Scholar]
  64. He J, Tian X. 2018. Finance and corporate innovation: a survey. Asia-Pac. J. Financ. Stud. 47:2165–212
    [Google Scholar]
  65. He J, Tian X. 2019. SHO time for innovation: the real effects of short sellers Work. Pap., Univ Ga./Tsinghua Univ:.
    [Google Scholar]
  66. Heath D, Mace C. 2019. The strategic effects of trademark protection Res. Brief Econ. Policy 189, Cato Inst Washington, DC:
    [Google Scholar]
  67. Hirshleifer D, Low A, Teoh SH 2012. Are overconfident CEOs better innovators. J. Finance 67:41457–98
    [Google Scholar]
  68. Hombert J, Matray A. 2017. The real effects of lending relationships on innovative firms and inventor mobility. Rev. Financ. Stud. 30:72413–45
    [Google Scholar]
  69. Howell ST. 2017. Financing innovation: evidence from R&D grants. Am. Econ. Rev. 107:41136–64
    [Google Scholar]
  70. Hsu PH, Tian X, Xu Y 2014. Financial development and innovation: cross-country evidence. J. Financ. Econ. 112:1116–35
    [Google Scholar]
  71. Hunt J, Gauthier-Loiselle M. 2010. How much does immigration boost innovation. Am. Econ. J. Macroecon. 2:231–56
    [Google Scholar]
  72. Jaravel X, Petkova N, Bell A 2018. Team-specific capital and innovation. Am. Econ. Rev. 108:4/51034–73
    [Google Scholar]
  73. Kerr W, Nanda R. 2015. Financing innovation. Annu. Rev. Financ. Econ. 7:445–62
    [Google Scholar]
  74. Khanna G, Lee M. 2018. High-skill immigration, innovation, and creative destruction NBER Work. Pap24824
    [Google Scholar]
  75. Kong L. 2020. Government spending and corporate innovation. Manag. Sci. 66:4 https://doi.org/10.1287/mnsc.2018.3252
    [Crossref] [Google Scholar]
  76. Laux V, Stocken PC. 2018. Accounting standards, regulatory enforcement, and innovation. J. Account. Econ. 65:2/3221–36
    [Google Scholar]
  77. Lerner J. 2009. The empirical impact of intellectual property rights on innovation: puzzles and clues. Am. Econ. Rev. Pap. Proc. 99:2343–48
    [Google Scholar]
  78. Levine R, Lin C, Wei L 2017. Insider trading and innovation. J. Law Econ. 60:749–800
    [Google Scholar]
  79. Lin C, Liu S, Manso G 2018. Shareholder litigation and corporate innovation Work. Pap., Univ. Hong Kong/Lingnan Univ./Univ. Calif Berkeley:
    [Google Scholar]
  80. Liu T, Mao Y, Tian X 2018. The role of human capital: evidence from patent generation Work. Pap., Univ. Pa./Cornell Univ./Tsinghua Univ.
    [Google Scholar]
  81. Luong H, Moshirian F, Nguyen L, Tian X, Zhang B 2017. How do foreign institutional investors enhance firm innovation. J. Financ. Quant. Anal. 52:1449–90
    [Google Scholar]
  82. Manso G. 2011. Motivating innovation. J. Finance 66:1823–60
    [Google Scholar]
  83. Manso G, Balsmeier B, Fleming L 2019. Heterogeneous innovation and the antifragile economy Work. Pap., Univ. Calif. Berkeley/Univ Luxembourg:
    [Google Scholar]
  84. Mao CX, Zhang C. 2018. Managerial risk-taking incentive and firm innovation: evidence from FAS 123R. J. Financ. Quant. Anal. 53:2867–98
    [Google Scholar]
  85. Mao Y, Wang JJ. 2019. Labor scarcity, finance, and innovation: evidence from antebellum America Work. Pap., Cornell Univ./Ariz. State Univ.
    [Google Scholar]
  86. Mezzanotti F. 2020. Roadblock to innovation: the role of patent litigation in corporate R&D Work. Pap., Northwestern Univ Evanston, IL:
    [Google Scholar]
  87. Moser P. 2005. How do patent laws influence innovation? Evidence from nineteenth-century world's fairs. Am. Econ. Rev. 95:41214–36
    [Google Scholar]
  88. Moser P. 2012. Innovation without patents: evidence from world's fairs. J. Law Econ. 55:143–74
    [Google Scholar]
  89. Moshirian F, Tian X, Zhang B, Zhang W 2020. Stock market liberalization and innovation. J. Financ. Econ. Forthcoming. https://doi.org/10.1016/j.jfineco.2020.08.018
    [Crossref] [Google Scholar]
  90. Mukherjee A, Singh M, Žaldokas A 2017. Do corporate taxes hinder innovation. J. Financ. Econ. 124:195–221
    [Google Scholar]
  91. Nanda R, Nicholas T. 2014. Did bank distress stifle innovation during the Great Depression. J. Financ. Econ. 114:2273–92
    [Google Scholar]
  92. Ovtchinnikov AV, Reza SW, Wu Y 2020. Political activism and firm innovation. J. Financ. Quant. Anal. 55:3989–1024
    [Google Scholar]
  93. Porter M. 1992. Capital disadvantage: America's failing capital investment system. Harvard Bus. Rev. 70:65–82
    [Google Scholar]
  94. Romer PM. 1986. Increasing returns and long-run growth. J. Political Econ. 94:51002–37
    [Google Scholar]
  95. Schumpeter JA. 1911. The Theory of Economic Development Cambridge, UK: Harvard Univ. Press
    [Google Scholar]
  96. Segal I, Whinston MD. 2007. Antitrust in innovative industries. Am. Econ. Rev. 97:51703–34
    [Google Scholar]
  97. Solow R. 1957. Technological change and the aggregate production function. Rev. Econ. Stat. 39:312–20
    [Google Scholar]
  98. Spulber DF. 2013. How do competitive pressures affect incentives to innovate when there is a market for inventions. J. Political Econ. 121:61007–54
    [Google Scholar]
  99. Sunder J, Sunder SV, Zhang J 2017. Pilot CEOs and corporate innovation. J. Financ. Econ. 123:209–24
    [Google Scholar]
  100. Tadesse S. 2006. Innovation, information, and financial architecture. J. Financ. Quant. Anal. 41:4753–86
    [Google Scholar]
  101. Tan Y, Tian X, Zhang X, Zhao H 2020. The real effects of privatization: evidence from China's split share structure reform. J. Corp. Finance 64:101661
    [Google Scholar]
  102. Tian X, Wang TY. 2014. Tolerance for failure and corporate innovation. Rev. Financ. Stud. 27:1211–55
    [Google Scholar]
  103. Tian X, Xu J. 2019. Do place-based policies promote local innovation and entrepreneurial finance? Work. Pap., Tsinghua Univ./Boston Coll.
    [Google Scholar]
  104. Zacchia P. 2020. Knowledge spillovers through networks of scientists. Rev. Econ. Stud. 87:41989–2018
    [Google Scholar]
  105. Zhong R. 2018. Transparency and firm innovation. J. Account. Econ. 66:67–93
    [Google Scholar]
/content/journals/10.1146/annurev-financial-032820-083433
Loading
/content/journals/10.1146/annurev-financial-032820-083433
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error