Financial slack, institutional shareholding and enterprise innovation investment: evidence from China

This study examines how institutional shareholding affects the relationship between financial slack and corporate investment in innovation for Chinese A-share listed companies. We find that financial slack significantly increases corporate innovation investment. Pressure-resistant institutions do not moderate the relation but pressure-sensitive institutions do moderate the relation negatively. We further find that financial slack affects beneficially results because of the employment of slack resources after an exogenous negative shock like COVID-19/Global Financial Crisis. Our findings contribute to the literature on the cross-sectional variation on the relationship between companies' strategies and accounting choices in China.

Automated summary

Financial slack positively affects corporate innovation investment, with different types of institutional shareholding having diverse impacts on this relationship. The study also reveals that financial slack can lead to beneficial outcomes when responding to external shocks.