Institutional Environment, Executive Equity Incentive, and Enterprise Innovation: The Case of China

Abstract The increase in national-level innovation driven by corporate innovation is an inherent requirement for the current shift from high-speed growth to high-quality development in China’s economy. In this study, we empirically analysed the influence of the institutional environment on corporate innovation and its underlying mechanism based on panel data of Chinese A-share listed companies from 2008 to 2016. The empirical results demonstrated that the institutional environment is conducive to the improvement of corporate innovation, and this result is validated by further robustness tests. The analysis of the companies’ subsamples showed that the stimulation effect of the institutional environment on corporate innovation is more significant in Central and Western China than in Eastern China. The role of the institutional environment is also more evident in non-state-owned small and medium-sized enterprises. Further analysis demonstrated that investment in R&D plays a mediator role in the context where the institutional environment promotes corporate innovation, and the executive equity incentives in this process have a moderating effect.