The impact of COVID-19 on firm innovation: Evidence from Chinese listed companies

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Highlights

  • This study examines the impact of COVID-19 on firm innovation.

  • The results show that at the national level, COVID-19 inhibits firm innovation in China.

  • At the regional level, there are no differences in the impacts of COVID-19 on Hubei province and other regions.

  • At the firm level, compared with non-state-owned enterprises (NSOEs), COVID-19 has a greater negative effect on the innovation quality of state-owned enterprises (SOEs). Innovation in large companies is more vulnerable to COVID-19 than in small and medium-sized enterprises (SMEs).

Abstract

This study examines the impact of COVID-19 on firm innovation using the data of Chinese listed companies from January 2020 to October 2020. The results show that at the national level, COVID-19 inhibits firm innovation in China. At the regional level, there are no differences in the impacts of COVID-19 on Hubei province and other regions. At the firm level, compared with non-state-owned enterprises (NSOEs), COVID-19 has a greater negative effect on the innovation quality of state-owned enterprises (SOEs). Innovation in large companies is more vulnerable to COVID-19 than in small and medium-sized enterprises (SMEs).

Introduction

As a major public emergency, the COVID-19 has significantly impacted human society. Human health and economic development are facing great challenges. In the context of modern development, convenient transportation, and socioeconomic integration have made it possible for labor, capital, and other factors to move freely across regions and even across borders. The convenience of the social economy intensifies the COVID-19 contagion for people all over the world, which greatly restricts the development of firms and economy.

Emergencies usually have an impact on entities in the form of event chains (Morgeson et al., 2015), that is, emergencies will affect certain specific aspects of society and firms, thus affecting firm innovation. Yang and Hou (2020) found that emergencies would affect firms’ strategic innovation Wang and Li (2015), firms’ collaborative innovation (Li, 2017) , and firms’ research and development (R&D) performance (Li, 2017) at the micro-level by summarizing the literature. Major public health emergencies can increase the cost of raw material procurement, prevent employees from returning to work, make it difficult for firms to resume work as scheduled, increase the pressure on business operations, and cause firms to experience a crisis of survival (He et al., 2020). Problems such as production shutdowns, untimely raw materials supply, delayed product sales, and supply chain disruptions can seriously affect firms’ cash flow and engender a liquidity crisis (Ma and Ke, 2020). Besides, the epidemic can also cause serious negative emotions for employees. Zhao (2020) believes that negative emotions harm innovative behavior. According to the research of Zhang and Yan (2020), negative emotions that inhibit the fluency and flexibility of employees’ thinking, hinder the improvement of firm innovation. While the COVID-19 has caused indelible damage to the world, it has also provided an opportunity and a new perspective for firm innovation. It has led us to conduct in-depth research and reflection on the epidemic to enrich firm innovation theories and apply them to guiding firm development and improving their ability to respond to emergencies. Therefore, it is of great theoretical and practical importance to study the impact of the COVID-19 on firm innovation.

Regarding the impact of the COVID-19 on firms, the existing literature mainly uses event studies to discuss the changes in development paths and opportunities for firms, with little literature empirically exploring the relationship between the epidemic and micro-individual behavior and its economic impact (Ma and Ke, 2020; Yang and Hou, 2020; Wang et al., 2020; Yang et al., 2020). Micro evidence is not only the basis for macro studies but also helps to provide entry points for policy interventions and provides evidence to support their intensity(He et al., 2020b) .

An existing empirical study examined the impact of the COVID-19 epidemic on firms’ innovation input (Han and Qian, 2020). The result shows that the firm innovation input of Chinese listed companies increased during the pandemic. However, improvements in innovation input do not mean that improvement in firm innovation has occurred. Therefore, this study presents a comprehensive analysis of the impact of the COVID-19 on firm innovation based on micro-level data.

The marginal contributions of this study are as follows. First, this paper examines the impact of the COVID-19 on firm innovation and explores the mechanisms underlying the impact of unexpected event shocks, which enriches the theory of firm innovation. Second, this paper subdivides firm innovation into innovation quantity and innovation quality, allowing for a specific and systematic study of the relationship between the COVID-19 and firm innovation. The findings provide evidence supporting the construction of economic responses to major public health emergencies and promoting firm innovation, which has significant policy value. Third, this paper uses data from Chinese listed companies, patent data, and epidemic data from January 2020 to October 2020. The data are effective and can immediately reflect the impact of the COVID-19 on firm innovation.

The rest of this paper is arranged as follows: The second section presents the research design; the third section analyzes the results of empirical testing, and the last section puts forward the conclusions, limitations, and future research directions.

Section snippets

Data source and sample selection

This study takes 633 Chinese listed companies as the research unit, using data from January 2020 to October 2020 to investigate the impact of COVID-19 on firm innovation. Data were obtained from Wind database, China Stock Market Financial Database (CSMAR), Incopat database, and China Statistical Yearbook.

Variable definitions

Dependent variables. A study by Han and Qian (2020) demonstrated that a variety of methods, such as R&D investment, the number of newly developed products, etc., have been employed to measure

Basic estimation results

Table 2 shows the regression results. Model 1 is the basic model that contains only the independent variable. In Model 1 and Model 2, the coefficients of COVID-19 on innovation quantity and innovation quality are significantly negative, indicating that the epidemic significantly and negatively affects firm innovation in China.

Comparison of firms in different regions

Hubei Province suffered the most from the COVID-19 in China. Therefore, we compared the heterogeneity of the impact of COVID-19 on firm innovation in Hubei and other

Conclusion

This paper evaluates the impact of the COVID-19 on firm innovation based on a panel dataset of Chinese listed companies from January 2020 to October 2020 and further examines the heterogeneity of the impact in terms of region, equity nature, and firm size. At the national level, innovation quantity and quality of Chinese firms were negatively impacted by the COVID-19. COVID-19 can inhibit firm innovation by reducing market demand and affecting capital supply and demand (Gao and Li, 2019). At

Author statement

Xin Jin: Conceptualization; Resources; Supervision; Project administration; Funding acquisition;

Min Zhang: Methodology; Formal analysis; Investigation; Data Curation; Writing - Original Draft;

Guanghua Sun: Software; Validation;

Lixin Cui: Writing - Review & Editing;

Acknowledgement

This research is suppported by The National Social Science Foundation of China (No. 19FGLB014) and The Social Science Foundation of Beijing, China(No. 15ZDA50).

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    1

    Xin Jin is a professor at the School of Information, Central University of Finance and Economics. His research interests include regional innovation and knowledge graph.

    2

    Min Zhang is a Ph. D. student at the School of Information, Central University of Finance and Economics. Her research interests include innovation management and knowledge management.

    3

    Guanghua Sun is a Ph. D. student at the School of Information, Central University of Finance and Economics. His research interests include innovation economy and innovation performance.

    4

    Lixin Cui is an associate professor at the School of Information, Central University of Finance and Economics. Her research interests include Internet finance and machine learning.

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