Administrative monopoly and state-owned enterprise innovation: Evidence from the fair competition review system in China

Abstract

This study examines the impact of administrative monopoly on corporate innovation, specifically focusing on the Fair Competition Review System (FCRS) implemented in China. Based on Chinese A-share listed firms from 2012 to 2020, we use the implementation of the FCRS as a natural experiment to conduct a difference-in-difference test. Our findings show that the FCRS significantly increases the level of innovation among SOEs through the mechanisms of resource acquisition and market competition. The incentive effect is not only at the strategic innovation level but also promotes the improvement of the substantive innovation level of SOEs. The heterogeneity test indicates that improvements stemming from the FCRS are more pronounced in specific functional categories, regions with poor business environments, and state-owned enterprises in industries that receive key policy support. Finally, our study also reveals that the FCRS promotes the input-output efficiency of innovation among SOEs. This research contributes to the literature by filling the research gap on the impact of administrative monopoly on corporate innovation, providing novelty evidence on the economic consequences of regulatory administrative monopoly, and offering policy insights regarding the FCRS.