Monetary incentives and innovation in Chinese SMEs
We investigate the impact of monetary incentives on the innovation performance of a unique sample of private Chinese SMEs. Building on an agency-theoretic framework, we find evidence that firm-specific incentives matter, but their impact is contingent on the nature of the incentive, the employees at whom it is directed, and the measure of innovation employed. However, contrary to our hypothesis and the evidence in other countries, we find that pay-for-performance measures for managers positively impact patenting activity. This result is inconsistent with agency theory and reflects the Chinese institutional environment, notably state incentives for innovation.
KeywordsChina SMEs Incentives Innovation Patents New-product sales
We are indebted for valuable comments to two anonymous referees, Lutao Ning, Shaowei He, and participants at the conferences on ‘Local Context and Challenges of Innovation in China’, Queen Mary College, University of London, 11–12 April 2016, and the International Workshop on Entrepreneurship in China, Peking University, Beijing on 14–15 October 2016. Miaojun Wang is grateful for financial support from the National Natural Science Foundation of China (Grant 71672177), from the Natural Science Foundation of Zhejiang (Grant LY16G030007), and from the Hengyi Fund, Zhejiang University.
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