How does ownership promote innovation in a Transition Economy? Evidence from China

This paper considers a comprehensive treatment of the effect of ownership types on innovation performance in a Transition Economy. Using a sample of Chinese manufacturing firms during 2005-2007, we find that firms of different ownership types exhibit different innovation performance, and that while collectively-owned enterprises (COEs) and Hong Kong, Macau and Taiwan owned enterprises (HMT) show weaker innovative capacity, research and development (R&D) investment has become the primary source to promote innovation for other ownership types. This study suggests that it is significant to recognize the mediating effects of R&D effort on the relationship between ownership types and product innovation. Policy makers and managers should be aware of how various ownership types promote product innovation when they implement corporate governance reform with great effectiveness.