Chen Dan Liu 2021

Government Support and Cross-Border Innovation: A
Quasi-Experiment in China
Kedong Chen
Strome College of Business, Old Dominion University, Norfolk, VA 23529, kchen@odu.edu
Xiaojin (Jim) Liu

School of Business, Virginia Commonwealth University, Richmond, VA 23284, xliu22@vcu.edu
Yuhong Li
Strome College of Business, Old Dominion University, Norfolk, VA 23529, y9li@odu.edu
Kevin Linderman
Smeal College of Business, Penn State University, University Park, PA 16802, kevinlinderman@psu.edu
Governments want firms to innovate new processes and products not only within their
countries, but also across national boundaries. Many countries have initiated policies to sup-
port firm’s global operations and innovation in other countries (cross-border innovation).
How does government support influence emerging-market firm’s cross-border innovation?
Through the conceptual lens of slack resources, this study investigates the role of gov-
ernment support in firm’s inventive activities in an uncertain, competitive global market.
This study examines Chinese firms’ patent filing in the U.S. under the enactment of the
“innovative cities” policy. We apply a generalized difference-in-differences (DiD) technique
to this staggered quasi-experimental setting and find that government support through the
policy stimulates firm’s cross-border innovation. We further show that firms with higher
R&D capacity take better advantage of government support. In addition, we show that
government support leads to a shift between firm’s exploratory and exploitative innovation.
Taken together, this study extends our understanding of slack from internal resources to
government support in the context of global operations and bridges the gap between slack
resources and cross-border innovation strategy. Findings of the study suggest that govern-
ment actions that improve the ecosystem of innovation in one country also strengthen firm’s
innovation and competitiveness overseas.
Key words : cross-border innovation, government support, difference-in-differences,
quasi-experiment
“National prosperity is created, not inherited.”
— Porter (1990, p.73)
1. Introduction
Much of wealth creation and economic leadership comes through the innovation of new products and
processes (Breznitz and Murphree 2011, Schilling and Shankar 2019). Nation states may attempt
to achieve this goal by encouraging firms to innovate not only within their countries, but also across
Electronic copy available at: https://ssrn.com/abstract=3929640

2 Chen, Liu, Li, Linderman: Government Support and Cross-Border Innovation
national boundaries. Cross-border innovation refers to a firm’s inventive activities across national
boundaries. It is becoming a critical step and a prevalent practice in firm’s global operations,
because “when internationalizing their operations, organizations benefit from access to remote and
diverse resources” (Lavie et al. 2010, p.146), and at the same time, firms can obtain the evidence
of “true innovation” (Breznitz and Murphree 2011, p.2). Every year from 2008 to 2019, more than
half of the patents (as indicators of innovation (Gittelman 2008, Griliches et al. 1987)) granted in
the U.S. were filed by foreign entities that do not have a physical presence in the U.S. (U.S. Patent
and Trademark Office 2021). Cross-border innovation in an advanced market like the U.S. gives
firms the ownership right to protect their patented invention and demonstrates a strong capability
of firms to seek global expansion and worldwide recognition.
Cross-border innovation is particularly important to firms in emerging markets. Emerging-market
firms bear the responsibilities to end extreme poverty, improve the economic and social well-being
of underprivileged stakeholders, and innovate the production to reduce negative environmental
impact (Cirera et al. 2021), as part of “inclusive supply chain innovation” (Kalkanci et al. 2019).
Traditionally, emerging markets have been viewed only as export-orientated places based on cheap-
labor enabled manufacturing, and emerging-market firms are considered to lack “firm-specific
advantages” or knowledge-based capabilities (Choo et al. 2020). However, the increasing trend of
cross-border innovation among emerging-market firms suggests that they have the potential to
grow and compete with firms in developed countries in the global market (Luo and Tung 2007).
Indeed, from 2007 to 2014, contribution to global foreign direct investment from emerging-market
firms increased from 12% to 36% (Paul and Benito 2018). As emerging-market firms expand their
business abroad, cross-border innovation becomes an indispensable component of their global oper-
ations more than ever.
To facilitate cross-border innovation from emerging markets, government support plays a critical
role (Guo et al. 2016). Compared to domestic innovation, cross-border innovation is associated
with more substantial uncertainty (Brouthers et al. 2008, Coeurderoy and Murray 2008, Sartor and

Chen, Liu, Li, Linderman: Government Support and Cross-Border Innovation 3
Beamish 2014). To help emerging-market firms overcome the uncertainty, government can enact
incentivizing policies to provide financial support and improve the infrastructure and ecosystem
of innovation, thereby enhancing firms’ foreign patenting and inventive productivity. Through
the conceptual lens of slack (Nohria and Gulati 1996), government support to firms essentially
constitutes slack resources – “valuable resources which facilitate product/service innovations” (Hitt
et al. 2016, p.80). As firms are expanding and innovating globally, the uncertain environments
and varying market conditions make slack resources even more critical (Kovach et al. 2015, Voss
et al. 2008, Wiengarten et al. 2017). So far, policy support for firm innovation is pervasive across
countries (Jugend et al. 2020, Patanakul and Pinto 2014), including both emerging markets (e.g.,
Bangladesh (Chaminade and Vang 2008), India (Gupta and Barua 2016), and Turkey (Özçelik and
Taymaz 2004)) and advanced markets (e.g., Korea (Kang and Park 2012), the U.K. (Chapman
and Hewitt-Dundas 2018), the U.S. and Europe (Acemoglu et al. 2018), and Sweden and Finland
(Torregrosa-Hetland et al. 2019)).
This study takes China, the largest emerging market, as an exemplar context of government sup-
port that incentivizes firm’s cross-border innovation. We focus on a single country as the context,
which allows us to reduce the threat of heterogeneity across countries and avoid skeptical findings
(Joglekar et al. 2016). In general, context-specific and evidence-driven studies have “yielded innova-
tive theories and models for best in class performance” in the field of operations management and
“will continue to do so as the field grows and matures” (Joglekar et al. 2016, p.1994). Moreover,
like many other countries, China actively implements national and regional policies to promote
product and process innovation in the global production, and benchmarks its success against devel-
oped countries such as the U.S. or regions like the Silicon Valley. Breznitz and Murphree (2011)
observed that, “Like the Red Queen, [China] runs as fast as possible in order to remain at the
cusp of the global technology frontier...” (p.3). In our empirical setting, the Chinese government
considers innovation to be “one of the key drivers of its future growth and convergence with more
developed countries” (Medvedev et al. 2020) and initiated a series of policy interventions in 2009

with an intent to develop “national innovative cities” (Shenzhen Government 2009, NDRC 2010,
MOST 2010). These policies provided financial and infrastructural benefits that would encourage
the innovation and expansion of firms located in the targeted cities, thereby enhancing their global
competitiveness.
Despite the benefits from government support, its effect on firm innovation remains mixed and
inconclusive in the literature (Acemoglu et al. 2018, Guo et al. 2016). How government support influ-
ences cross-border innovation is poorly understood. We argue that government provides resources
that support inventive activities in the uncertain global market. Firms with stronger absorptive
capacity more effectively utilize slack resources, which helps firms better handle environmental
uncertainties (Kovach et al. 2015, Voss et al. 2008, Wiengarten et al. 2017). We operationalize cross-
border innovation as Chinese firms’ patenting behavior in the U.S., based on “the value of patents
as indicators of innovation” (Gittelman 2008, Griliches et al. 1987). To answer the research ques-
tion, we adopt a difference-in-differences (DiD) technique, which examines Chinese firms’ patent
application in the U.S. before and after the policy shock in each of the “innovative cities”, along
with a control group of firms that did not receive the policy intervention. Specifically, we first
examine the effect of government support on firm’s overall patent filing in the U.S. Then, we inves-
tigate whether firms that have stronger R&D capacity to undertake innovation projects gain more
from government support? Finally, we investigate whether firms alter their cross-border innovation
strategies after receiving the support. As innovations can be broadly classified into exploration and
exploitation (Adler et al. 2009, Benner and Tushman 2002), we examine whether firms alter their
relative level of exploratory and exploitative efforts after the policy intervention.
The results support that government support stimulates cross-border innovation; that is, firms
located in “innovative cities” obtained more U.S. patents than their counterparts in other cities. In
addition, firms that had higher R&D capacity were granted more U.S. patents. That is, the policy
interventions made the strong firms stronger. Moreover, firms shifted their focus of cross-border
innovation after receiving government support – firms that conducted more exploration shifted

towards exploitative innovation and vice versa. In general, this research integrates three literature
streams – slack, absorptive capacity, and innovation – and extends our understanding of slack
to government support in the context of global operations. Emerging-market firms who conduct
cross-border innovation are faced with riskier and more uncertain environment than those who
innovate domestically. This study extends previous findings on slack resources to the context of
global operations (cross-border innovation) which is more competitive and uncertain. We further
clarify the moderating role of absorptive capacity and how firms shift between exploration and
exploitation in the global market. This study provides implications to firms who wish to leverage
government support and to countries that have enacted or are going to enact similar innovation
policies.
The rest of this paper is organized as follows. Section 2 reviews the literature on slack, absorptive
capacity, and innovation in the operations management domain. We focus on cross-border innova-
tion, the role of government, firm’s R&D capacity, and firm’s innovation strategies. This section
also develops hypotheses based on the literature. Section 3 introduces the quasi-experimental set-
ting, the data used in the analysis, and the empirical model with the operationalization of the
variables. Section 4 presents the analyses and results, together with the post hoc analysis. Section 5
discusses the research findings and managerial implications. It also concludes the paper with future
research opportunities.
2. Theoretical Background and Hypotheses

This study investigates the firm-level relationship between cross-border innovation and government
support based on three literature streams in operations management (OM) – slack, absorptive
capacity, and innovation. This section reviews the literature related to these three theoretical
perspectives and develops hypotheses regarding cross-border innovation under government support.
2.1. Cross-Border Innovation and Government Support
Innovation of new products and processes involves highly specialized, interdependent activities and
“remains one of the most challenging efforts to perform and manage” (Kavadias and Hutchison-
Krupat 2020, p.202). Yet, innovation provides firms with possible reactive strategies to prevent

losing market share or proactive strategies to gain a strategic market position relative to their
competitors (Porter and Van der Linde 1995). In global expansion and operations, cross-border
innovation becomes even more challenging with substantial uncertainty such as rapid changes in
technologies and market conditions (Sartor and Beamish 2014), the regulatory hazard of global-
ization (Coeurderoy and Murray 2008, Henisz and Delios 2001, Zhang et al. 2007, Zhao 2006), and
the political and economic instabilities in the target country (Brouthers et al. 2008, Demirbag and
Glaister 2010, Schotter and Teagarden 2014). Nonetheless, cross-border innovation is also more
rewarding as it provides “ownership advantages” (Dunning 1980) through proprietary information
and various ownership rights, which lead firms to have faster innovation speed (Carlsson 2006,
Hsuan and Mahnke 2011), greater efficiency (Currie et al. 2008, Mukherjee et al. 2013, Nieto and
Rodrı́guez 2011), greater flexibility (Albertoni et al. 2017, Rodrı́guez and Nieto 2016), a better
appropriability regime (Contractor et al. 2003), and reinforced legitimization (Hurtado-Torres et al.
2018).
When firms are faced with substantial uncertainty in their cross-border innovation, government
support helps firms mitigate the uncertainties (Akkaya et al. 2020, Correa et al. 2013, Kang and
Park 2012). Through innovation policies, governments provide financial stimulus and loans that
help buffer firms from shortages of funds, conduct experiments, absorb failures, promote risk-
taking decisions, and facilitate product/service innovations (Block and Keller 2009, Lu et al. 2014,
Nohria and Gulati 1996). In addition, government provides “economic benefits arising from the
accumulation of skilled labor, specialized suppliers, and knowledge in the location” (Devarakonda
et al. 2018, p.1112). The clustering of the related firms, suppliers, and service providers creates
positive externalities for the focal firm and influences its ability to conduct R&D and other value
chain activities (Alcácer and Zhao 2012, Devarakonda et al. 2018, Massimino et al. 2017). In
general, government provides slack resources to firms that are “in excess of the minimum necessary
to produce a given level of organizational output” (Nohria and Gulati 1996, p.1246).
There are mixed findings on the effect of slack resources on firm innovation. On the one hand,
slack resources are believed to facilitate product/service innovations (Dewar and Dutton 1986, Hage

1980, Hitt et al. 2016). They allow an organization to purchase innovations, absorb failure, bear
the costs of instituting innovations, and explore new ideas in advance of an actual need (Rosner
1968, Hitt et al. 2016). On the other hand, some studies suggested more complex contingencies.
Nohria and Gulati (1996) reported an inverse U-shaped relationship between slack and innovation:
both too much and too little slack may be detrimental to innovation. Voss et al. (2008) examined
how slack resources influence innovation and found systematic variation depending on the extent
to which a resource is rare and absorbed in operations. In general, as Tan and Peng (2003) have
pointed out, slack can provide organizations with opportunities to develop new products and
enter new markets from the perspective of organization theory, whereas it can also be a financial
burden that breeds inefficiency and inhibits performance through the lens of agency theory. “A
contingency perspective” is needed “to specify the nature of slack when discussing its impact on
firm performance” (Tan and Peng 2003, p.1249).
This study aims to add clarity to the mixed literature by examining slack resources in the context
of global operations. Based on studies such as Bradley et al. (2011), Kovach et al. (2015), and
Wiengarten et al. (2017) that verified an important moderating role of environmental conditions
in the effect of slack resources on firm performance, we conjecture that, to innovate in a more
advanced, competitive, and uncertain market like the U.S., emerging-market firms need and can
benefit from government support as slack resources. Compared to firms from developed countries,
emerging-market firms are endowed with fewer resources and/or “firm-specific advantages” (Choo
et al. 2020), but government support provides financial and economic benefits, increases firms’
access to a larger pool of external knowledge from related industries, boosts innovation incentives
via social influence, and fosters competition environment for innovation. Tan and Peng (2003)
examined slack resources in Chinese firms in particular and demonstrated that slack at Chinese
firms does not inhibit efficiency or performance. Slack resources help firms survive environmental
changes and supply chain disruptions (Hendricks et al. 2009), which they often face in global
competition and cross-border innovation. In general, emerging-market firms take advantage of the

policy benefits so as to better mitigate uncertainties of cross-border innovation and achieve higher
inventive productivity in their global operations. Therefore, we propose the following hypothesis.
Hypothesis 1 (H1). Firms increase cross-border innovation with domestic government sup-
port.
2.2. Role of R&D Capacity in Cross-Border Innovation
Although we argue that government support provides slack resources that are beneficial in gen-
eral, the magnitude of the effect of these benefits varies across individual firms (Guo et al. 2016).
Some studies (e.g., Aerts and Schmidt 2008, Lerner 2000) find that local government support can
help increase firms’ capability and enable them to compete in the global market, whereas others
are concerned that emerging-market firms lack their own capabilities, so government support can
often be “ineffective and misleading” (Rugman and Li 2007). Through examining the international
patenting behavior of firms in developing East Asia, Cirera et al. (2021) found a considerable
heterogeneity in the innovation performance of those firms. One important and plausible explana-
tion for the mixed findings that Cirera et al. (2021) proposed is that firms have different levels of
“absorptive capacity”.
Absorptive capacity refers to a firm’s ability to “recognize the value of new, external information,
assimilate it, and apply it to commercial ends” (Cohen and Levinthal 1990, Zahra and George
2002). We argue, from the perspective of slack resources, that government support adds unabsorbed
slack to a firm, and firms with a higher level of absorptive capacity take better advantage of
unabsorbed slack. Particularly, Unabsorbed slack refers to “currently uncommitted resources” that
are “more easily redeployed elsewhere, allowing for greater managerial discretion” (Tan and Peng
2003, p.1251). Government support in the form of financial stimulus and loan and tax benefits
constitutes generic, unabsorbed slack such as financial slack (Voss et al. 2008). Stronger absorptive
capacity increases the efficiency of the transformation and utilization of unabsorbed slack resources,
which enables firms to be more capable of dealing with managerial complexity and environmental
risks (Leiponen and Helfat 2010). Some of unabsorbed slack may even transform to absorbed slack

that represents non-liquid resources with low discretionary use (Tan and Peng 2003) but provides
flexibility for firms to handle environmental uncertainties (Wiengarten et al. 2017). In general,
firms with a higher level of absorptive capacity can more easily identify knowledge, resources, and
opportunities from external environment (Tödtling et al. 2009, Vinding 2006) and thus better
address challenges in (cross-border) innovation (Bellamy et al. 2014, Liu et al. 2014, Park et al.
2018, Patel et al. 2012, Preston et al. 2017).
In cross-border innovation, R&D capacity of emerging-market firms plays a key role in their
uncertain inventive activities, as R&D capacity consists of a set of “know-hows” that enable firms
to respond to market conditions, identify relevant new technologies, develop plans to exploit them,
and then acquire the necessary resources to do so (Cirera et al. 2021). To conduct cross-border
innovation, emerging-market firms face great challenges associated with global shocks that require
them to accelerate technology diffusion and enable more sophisticated forms of innovation and
discovery (Cirera et al. 2021). As Petricevic and Teece (2019) pointed out, firms face pressures to
“re-examine their own ‘global’ value chains, re-evaluate their cross-border investments strategies,
re-assess their innovation and technology flows, and re-consider their strategic partnerships from
a new perspective” (p. 1488) under the uncertain globalization trajectory of the world’s economy.
By better absorbing slack resources through government support, firms can better address the
competitive pressure with both domestic and foreign firms (Verhoogen 2020, Zanello et al. 2016).
Firms can more effectively handle the uncertainty of innovation in the foreign market and translate
resources into innovative products and processes (Gann and Salter 2000). On the contrary, in the
absence of high R&D capacity, a firm can still benefit from having access to government support,
but will be limited in their ability to leverage this benefit to improve its innovation performance
(Kang and Lee 2008). Therefore, we argue that there is a synergistic effect between a firm’s R&D
capacity and government support on the firm’s cross-border innovation. We propose the following
hypothesis.
Hypothesis 2 (H2). Firms’ R&D capacity amplifies the effect of government support on cross-
border innovation.

2.3. Shift in Focus of Cross-Border Innovation under Government Support
Innovations can be broadly classified into exploration and exploitation, but the way exploration
and exploitation are managed in a firm can be quite different, even “conflicting” (Adler et al. 2009,
Benner and Tushman 2002, March 1991, O’Reilly and Tushman 2013). Nonetheless, recent evidence
from a meta-analysis suggests that “exploration and exploitation can coexist” (Fourné et al. 2019, p.
571), and environmental, organizational, and managerial conditions can shape how an organization
balances these two types of activities and pursues structural or contextual ambidexterity (Lavie
et al. 2010, Fourné et al. 2019). While much research has shown that slack resources can improve
firm performance in terms of innovation, adaptability, and risk-taking (Bourgeois III 1981, Bromiley
1991, Cheng and Kesner 1997, Nohria and Gulati 1996), less is understood how slack resources affect
firm’s innovation strategy between exploration and exploitation, especially in global operations.
Voss et al. (2008) is one of the few studies to provide evidence that absorbed resources are associated
with increased exploitation and decreased exploration, whereas unabsorbed resources result in
higher exploration and lower exploitation under high environmental threat. However, to the best
of our knowledge, no study has examined how firms shift their overseas innovation strategy after
receiving extra resources from government.
Government support can alter and further shape the tension between exploration and exploita-
tion (Gaimon et al. 2017) and potentially “moderate how firms manage internal R&D activities
involving exploration and exploitation” (Choo et al. 2020, p.353). We argue that government sup-
port leads to a shift in the level of exploration and exploitation when firms innovate overseas. On
the one hand, slack resources can encourage experimentation and increase the willingness of an
organization to take risks (Bromiley 1991, Greve 2003, Moses 1992, Steensma and Corley 2001). As
cross-border innovation is characterized with high risk, uncertainty, and competition, firms tend to
invest resources in search of new competencies instead of enhancing their current strategic positions
(Voss et al. 2008). Intensifying competitive pressures prompt firms to seek extra, external resources
from partners (Beckman et al. 2004) and call for exploration that can drive change and nurture

new sources of competitive advantage (Levinthal and March 1993). Therefore, slack resources from
government support can increase firm’s exploratory innovation overseas.
On the other hand, we argue that firms initially emphasizing exploration would increase their
exploitative activities. Firms who previously focused on exploration have utilized slack resources.
By receiving extra external support of generic and unabsorbed slack from government, firms accu-
mulate an abundant amount of slack, which can then be utilized and deployed to support existing
exploitative projects that promise short-term gains, in the forms of human resource slack and oper-
ational slack (Voss et al. 2008). Some unabsorbed slack can transform to absorbed slack, whose
use is largely restricted to current operations and business (Argilés-Bosch et al. 2016), leading to
more exploitative innovation in firm’s global operations. The competition and uncertainty from
cross-border innovation also impose constraints on firms when they redeploy these resources to
new uses (Chen et al. 2018) and hence favor exploitative innovation (Jansen et al. 2006).
In sum, the shift in the focus of cross-border innovation aligns with the notion to balance
between exploration and exploitation in order for firms to remain competitive in the long run
(Adler et al. 2009, Chandrasekaran et al. 2016, Gupta et al. 2006, He and Wong 2004, Kortmann
et al. 2014, Kristal et al. 2010, Patel et al. 2012). Adopting a balanced innovation portfolio can
help firms better address the uncertainty (Patel et al. 2012), overcome the productivity dilemma
(Adler et al. 2009), and achieve superior performance than firms emphasizing one strategy at
the expense of the other (O’Reilly and Tushman 2008). Emerging-market firms’ decision on an
optimal dynamic pursuit of exploration and exploitation overseas can be rather challenging, due to
resource constraints (Choo et al. 2020), socioeconomic challenges (Mostafa and Klepper 2018), and
increased levels of competition (McCann and Bahl 2017). With government’s financial support and
informational access to partners’ capabilities, industrial information, and customer needs (West
and Bogers 2014), firms can employ a balanced strategy for new products and processes to align
the key parameters (e.g., functionality, features, performance) with the market environment (e.g.,
complexity, instability) in global operations (Chao and Kavadias 2008). “Appropriately balancing

an R&D mix in a portfolio can lead to high product and process innovation outcomes” (Choo et al.
2020, p.356). Therefore, we have the following hypotheses.
Hypothesis 3A (H3A). Firms with initially high exploitative innovation reduce the proportion
of exploitative innovation with government support.
Hypothesis 3B (H3B). Firms with initially high exploratory innovation increase the propor-
tion of exploitative innovation with government support.
3. Research Method
3.1. Policy Enactment as Quasi-Experiment
The Chinese government has prioritized innovation as a national level strategy to foster eco-
nomic development and social progress (Genin et al. 2020, Jiang et al. 2019). In the year 2009,
China’s National Development and Reform Commission (NDRC) approved the pilot construction
of national innovative cities in Shenzhen (Shenzhen Government 2009). In the subsequent years,
China’s Ministry of Science and Technology (MOST) followed up with NDRC and co-developed
the policy of “constructing national innovative cities”. Consequently, sixty other cities in China
were approved to implement the innovative city policy on a rolling basis (MOST 2010, MOST and
NDRC 2016). Since 2017, the most recent year in the data set, there have been 61 cities in China
that implemented the policy (see Table A1 in Appendix A for a complete list).
The policy has been implemented at the city level in China. Based on the government publication
(MOST and NDRC 2016), the purpose of the policy is to promote the innovation capability of the
city. The enactment of the policy requires the city government to do the following: (1) reform the
policies including technology, economy, and administration, (2) accumulate and provide elements
that promote innovation such as talents, research labs, subsidies, tax reduction, information and
technology, (3) transform innovation outcomes (e.g., patents) to concrete products/services, (4)
cultivate entrepreneurship, (5) upgrade the infrastructure, (6) stimulate researchers and talents,
(7) improve related services (e.g., legal services), (8) enhance investment and financing systems
(e.g., financial product innovation for firms), (9) improve the living conditions for the people, and

(10) create an innovation-oriented ecosystem. In general, firms headquartered in an innovative
city enjoy the financial and institutional benefits that the government has provided to enhance
competitiveness in both domestic and international markets.
The enactment of the innovative city policy in China serves as a quasi-experimental setting for
our theoretical and empirical inquiry. This setting ensures the exogeneity of the policy enactment
to firms, as the policy is determined by the Chinese government at the national level. The city
governments implement the policy based on the upper-level guidance. We provide contextual sup-
port and empirical verification in Section 3.3.2 that the policy is not driven by individual firms’
decisions, strategies, or activities. In this sense, such policies offer plausibly exogenous variation in
a firm’s innovation performance and strategy. Using policy as an intervention to draw causal infer-
ence has been receiving more attention in the OM field (Ho et al. 2017, Oliva 2019). For instance,
Scott et al. (2020) examined the effect of a mandate that requires truck drivers to adopt electronic
logging devices to record their working hours on different safety behaviors and outcomes.
3.2. Data and Variables
To investigate the effect of government support on firms’ cross-border innovation, we developed
two panels from three data sources, namely the policy data of innovative cities in China, the U.S.
patent data, and firms’ financial data from Compustat. Patents are territorial in nature, and they
must be filed in each country where protection is sought. Research finds that “patents from different
patent authorities across the world are not comparable to each other” (Berry 2014, p.875). Thus,
we follow the literature and use the U.S. patents, because “it is common practice to use data from
a single patent-granting country to standardize the measure of innovation ... I use data on U.S.
patents from USPTO” (Berry 2014, p.875).
The first panel matches the policy data to the U.S. patent data. The policy data contain the
cities and the year when the cities implement the policy of innovative city (see Appendix A Table
A1). The U.S. patent data contain patent application in the U.S. by firms and individuals from all
over the world. It has been widely used in the literature (e.g., Cirillo 2019). We downloaded the

patent data from the United States Patent and Trademark Office (USPTO)1 using the PatentsView
platform2 . The raw data have the following patent application information: inventors, assignees
(i.e., firms in our study), city and country of each assignee (firm), application year, patent claims,
citations, patent classes and sections, and so on. Because a firm may be recorded in different names
and locations in the raw patent data, PatentsView has standardized the firm names and locations
across all patents, which reduces the ambiguity and increases the usability of the data.
We used the first panel in the main analysis. We extracted all patents related to Chinese firms, by
selecting patents awarded to firms in the category of “foreign corporations” and located in China
as reported in the PatentsView. One key step in our sample creation was to integrate the policy
data with the patent data by the city location of the firm. Specially, we standardized the location
information for firms in each patent via (1) filling the missing information of the city, (2) cleaning
the city names (e.g., wrong spelling), (3) transforming the names to geo-standardized spatial data,
(4) manual checking, and (5) consolidating the data and assigning a unique correct city to a firm
(by detecting the city that is most reported on patents for a firm). After these steps, we cross-linked
the patent data to the policy data by city. We selected a time range of 2005 to 2017, to cover the
entire period of the innovative city policy and make it long enough for the difference-in-differences
analysis. The first panel has 7, 785 firms with 13, 077 firm-year observations.
The second panel in this study further matches the first panel to the Compustat data. We
obtained firms’ R&D spending and return on assets (ROA) over the years through Compustat, to
verify the effect of government support on firms’ financial performance. We cross-linked the first
panel to the Compustat data by firm-year combination. Nonetheless, many Chinese firms in the
patent data are not publicly listed in the U.S. When we matched the two data, entries related
to the private Chinese firms were removed, resulting in 390 firm-year combinations in the second
panel.
1
https://www.uspto.gov
2
https://www.patentsview.org/download

3.2.1. Dependent Variables. The main analysis examines two dependent variables – cross-
border innovation and proportion of exploitation – to verify Hypotheses 1 & 2 and Hypotheses 3A
& 3B, respectively. The first dependent variable cross-border innovation is operationalized as the
number of patents granted by USPTO for a firm in a year. Patent has the value as indicators of
innovation (Gittelman 2008, Griliches et al. 1987). We use this proxy to capture firms’ innovation
activities through inventions of new products and processes (e.g., Flammer and Kacperczyk 2016,
Atanassov 2013), which reflect firms’ innovation efforts and pursuits of new product development
(NPD) in the early stage (Kavadias and Ulrich 2020). To link the patent measure to the time
when innovation activity was undertaken in a firm, we focus on the patent application year rather
than the approval year, as there may be arbitrarily long lags between filing and approval dates
for patents (Ahuja 2000, Benner and Tushman 2002, Flammer and Kacperczyk 2016). The “year”
throughout the paper refers to the application year of the granted patent unless otherwise specified.
The second dependent variable is the proportion of exploitation with respect to a firm in a year.
We follow Benner and Tushman (2002) and first examine a patent’s level of exploitation as the
extent to which the patent anchors on the existing knowledge in a firm. We record repeat citations
(i.e., patents that the firm had previously cited) and self-citations (i.e., the firm’s own previous
patents) as the existing firm knowledge. For a patent, the ratio between the citation belonging to
the existing firm knowledge and the total citation is the patent’s level of exploitation. After we
calculate the level of exploitation for all patents for a firm in a year, we then average the level of
exploitation to obtain a firm’s proportion of exploitation in that year. This metric captures the
strategic focus of a firm’s innovation for new products and processes.
In the post hoc analysis, we include Return on Assets (ROA), an important indicator of a firm’s
financial performance, as an additional dependent variable. A firm’s ROA is measured as the firm’s
net income over its total assets. It captures a firm’s operating returns, which depends on the total
resources (i.e., assets) inside a firm and the firm’s ability to transform the resources into profits.
This measure is widely adopted in related studies such as Bayus et al. (2003), Corbett et al. (2005),
Flammer and Kacperczyk (2016).

3.2.2. Independent Variables. The analysis examines three critical independent variables to
investigate the role of government support in firms’ cross-border innovation and a firm’s innovation
strategy. First, government support is a binary variable indicating whether the residing city of a
firm is an innovative city in a given year. Specifically, the variable takes the value of 1 when the
innovative city policy is enacted in the year and for all the subsequent years for a city (“treatment
group”), and 0 otherwise (“control group”). This measure is a commonly used DiD estimator
(e.g., Bertrand and Mullainathan 2003, Bertrand et al. 2004, Flammer and Kacperczyk 2016)
and can help identify the treatment effect of the government support through the DiD technique.
Specifically, we examine the change in firms’ cross-border innovation before and after receiving the
government support (first difference) between the treated and control cities (second difference).
R&D capacity is operationalized as the number of inventors in a firm within a year (Hanaki et al.
2010, Veugelers 1997). We obtain the measure by counting unique inventors across all patents of
the firm by year. By focusing on inventors, we emphasize R&D capacity as related to human/talent
capitals invested by the firm. In other words, this measure enables us to capture firms’ absorptive
capacity through firms’ own investment in their talent employees. Our measure of R&D capacity
as absorptive capacity is derived from the commonly used measures in the literature, such as R&D
spending (Cohen and Levinthal 1990, Hanaki et al. 2010, Veugelers 1997), and human capital and
employee expertise (Zahra and George 2002, Lawrence et al. 2019, Pereira and Leitão 2016).
We create two dummies – initial exploitation and initial exploration – to capture firms’ initial
innovation strategy before the enactment of the policy. We use the following criteria to define
a firm’s initial innovation strategy (Benner and Tushman 2002). First, for a year prior to the
policy enactment given a city, if the firm’s proportion of exploitation is greater than 0.6, it
adopts the exploitation strategy in that year (initial exploitation = 1 and initial exploration = 0).
If the proportion of exploitation is less than 0.4, it adopts the exploration strategy in that year
(initial exploitation = 0 and initial exploration = 1). Otherwise, the firm adopts a balanced strat-
egy, and both variables are equal to 0. Second, for a year in or subsequent to the policy enactment,

these variables remain unchanged from the most recent year before the policy enactment. We note
that some firms are only present after the policy enactment in our sample. Due to a lack of infor-
mation to determine firms’ innovation strategy prior to the policy enactment, we are unable to
assign appropriate initial innovation strategy to those firms. Therefore, we remove those firms in
the related analysis, leading to 2, 938 firm-year combinations for the variables.
The analysis also includes the following control variables. Collaboration frequency is a firm’s
patent co-filing activities with other firms in a year. It accounts for the fact that a patent can be
filed by more than one firm. We obtain this variable by summing the number of other firms across
patents for a focal firm within one year.
A patent has one or more claims that define what subject-matter is protected by the patent.
A patent with more claims will more likely withstand legal challenges. The variable of number of
claims controls for the average number of claims across patents of a firm within a year. It provides
a proxy for the overall legal strength of a firm’s patents (Harhoff and Reitzig 2004, Huang and Li
2019, Lanjouw and Schankerman 2001).
We control for home-country citation, a variable that measures the extent to which a firm’s
patents cite other Chinese firms’ patents (i.e., Chinese citations). We obtain the proportion of
Chinese citations for a patent and then average the proportions across patents at the firm-year
level. The variable reflects the extent to which the firm learns from domestic (Chinese) knowledge.
We use the data of cooperative patent classification (CPC) from USPTO to classify patents into
sections, which indicates the subject to which the invention broadly relates. The variable of number
of sections is measured by the number of unique sections across patents for a firm in a year, to
capture the broadness of the firm’s innovation scope (Lerner 1994, Scotchmer 1991).
We obtain the primary section of a firm by identifying the patent section with the highest
frequency across all patents for a firm in a year. This variable captures the industry or the area
that the firm primarily innovates in.
The analysis also includes each firm and each application year as the fixed effects in the empirical
model. These variables account for idiosyncrasy and heterogeneity across firms and time.

3.3. Empirical Model
3.3.1. Difference-in-differences. To examine whether government support fosters cross-
border innovation of firms, we follow the literature (e.g., Bertrand and Mullainathan 2003,
Dhanorkar 2019, Flammer and Kacperczyk 2016, Liu and Bharadwaj 2020) and apply the
difference-in-differences (DiD) technique. Because the time (year) of the innovative city policy
(“treatments”) is different across cities (see Table A1 in Appendix A), we are analyzing a staggered
quasi-experimental setting. The generalized DiD model as suggested by Wooldridge (2019, Chapter
14-4) is most suitable for a staggered quasi-experimental setting when multiple treatment groups
receive the treatment at different times. Specifically, we estimate the following regression:
Cross.Border.Innovationict = αi + αt + β1 · Gov Supportct + γ 0 X ict + εict (1)
where i indexes firms; t indexes years; αi and αt are firm and year fixed effects, respectively. The
dependent variable of interest is Cross.Border.Innovation, which is the number of cross-border
patents. Gov Support is the post-treatment dummy of the policy enactment of innovative city as
earlier described. X is the vector of control variables. ε is the error term. The analysis uses a
Poisson regression for the model, because the dependent variable is a count measure. To account
for serial correlation of the error term, we cluster standard errors at the city level (Flammer and
Kacperczyk 2016). The coefficient of interest is β1 , which measures the effect of government support
on cross-border innovation. Hypothesis 1 predicts that β1 should be positive and significant.
To examine the moderating role of a firm’s R&D capacity, we add an interaction term to the
regression. That is,
Cross.Border.Innovationict = αi + αt + β2 · Gov Supportct × R&D Capacityict

(2)
0
+ γ X ict + εict
where the symbols carry the same meaning, except that the coefficient of interest becomes β2 ,
which measures how R&D Capacity moderates the effect of government support on cross-border
innovation. We continue to use Poisson regression. Hypothesis 2 predicts that β2 should be positive
and significant.

To examine whether firms adjust their portfolio of exploratory and exploitative innovations
after receiving the government support, we conduct subgroup analysis. Based on firms’ initial
exploitation and initial exploration values, we classify the firms into three groups, namely initially-
exploiting, initially-balanced, and initially-exploring. For each group, we examine the firm’s overall
proportion of exploitation to identify how the firm shifts its strategic focus between exploitation
and exploration. The following model applies to any of the three groups.
% Expltict = αi + αt + β3 · Gov Supportct + γ 0 X ict + εict (3)
where the symbols carry the same meaning as those in the previous models. However, the dependent
variable becomes % Explt, a firm’s mean proportion of exploitation across all its patents in a
year. Because the dependent variable is a ratio, we adopt the generalized linear regression with
the logit link. The coefficients β3 measures the extent to which government support promotes the
change in firms’ cross-border innovation strategy. Hypothesis 3A predicts that for the initially-
exploiting group, β3 should be negative and significant, while Hypothesis 3B predicts that for the
initially-exploring group, β3 should be positive and significant.
3.3.2. Validity of the Identification Strategy The identification strategy should meet the
requirements of inclusion and exclusion restrictions to be valid. First, the inclusion restriction
indicates that the treatment (i.e., the enactment of the innovative city policy) needs to trigger
relevant changes in firm behavior. In our context, although the policy enactment provides us with
unequivocal treatment and control groups, we cannot directly observe that firms use the government
support to make changes to their cross-border innovation. Nonetheless, this issue only results in
an under-estimation of the treatment effect, because firms that utilize the support are pooled with
those that do not (see Scott et al. (2020) for a similar argument). Therefore, the DiD design is
still valid (Angrist and Pischke 2010). Furthermore, this concern can be addressed by obtaining
additional evidence through examining the effect of the support on the firm’s R&D spending.
Section 4.3.2 re-estimates equation (1) using the R&D spending from Compustat as the dependent
variable and demonstrates that government support significantly affects the firms’ R&D activities.

Second, the exclusion restriction requires that the treatment (the policy enactment) needs to
be exogenous with respect to firm innovation. In other words, the enactment of the policy should
not be driven by individual firms’ decisions, strategies, or activities. In this research context, the
policy is determined by the national level government that issues guidance on the implementation
to city-level governments. We searched for qualitative evidence that would suggest that firms affect
and take advantage of the policy enactment. We first examined the headquarters of the firms in
our sample. We do not find empirical evidence that firms change their headquarter location during
2005 - 2017. Given that the first year of the innovative city policy is 2009, we claim that it is less
likely that firms knew the future enactment of the policy beforehand and intentionally pursued the
resources by moving. Next, we searched the CNKI database (https://cnki.net/)3 for information
indicating that firms intentionally take actions such as lobbying to affect the innovation policy. We
find no such evidence of firms affecting the policy enactment.
In addition to the contextual evidence, we also empirically mitigate this concern by checking the
“parallel trends” assumption of the DiD method (Angrist and Pischke 2008) in Section 4.3.3. We
rely on the control group as a valid counterfactual – in the absence of treatment, the treatment
group would have followed the same trend as the control group. If our results are driven by reverse
causation, the policy should have a positive and significant “effect” already before it had been
enacted. Nevertheless, when we examine the dynamic effect of the treatment, we do not find a
pre-existing positive “effect” of government support on cross-border innovation (see Table 6 in
Section 4.3.3).
The identification strategy may also suffer from unobserved differences between treated and
control firms that may affect both innovation and the treatment. Nevertheless, this concern is
3
CNKI is an online publishing platform of China knowledge resources initiated by Tsinghua University and Tsinghua
Tongfang Holding Group. It provides “over 90% of China knowledge resources, the widest in title and type coverage
and deepest in year coverage in China” and “comprehensive coverage of journals, dissertations, newspapers, pro-
ceedings, yearbooks, reference works, encyclopedia, patents, standards, S&T achievements and laws and regulations”
(https://oversea.cnki.net/index/Support/en/Project.html).

unlikely to explain our results, because (1) we find no evidence of preexisting policy effect as
discussed above, and (2) the eventually treated firms are first in the control group and only later in
the treatment group, due to the staggered enactment of the policy. To strengthen the rationale, we
re-estimate our DiD specification through the following two methods. First, we conduct propensity
score matching to obtain a matched sample of firms in the treatment and control groups, to allay
the concern of sample selection and sample heterogeneity. We re-estimate the specifications using
the matched sample. Results confirm the robustness of our findings (see Section 4.3.1). Second, we
notice that the enactment of the policy is staggered over time. That is, the composition of both
the treatment and control groups changes over time as more cities are progressively treated. We
re-estimate the specifications using only the eventually treated firms. In other words, the control
group consists exclusively of firms that are eventually treated (see Bertrand and Mullainathan
(2003) and Flammer and Kacperczyk (2016) for a similar argument). The re-estimation results in
Section 4.3.4 indicate that our results are robust, too.
4. Analysis and Results

4.1. Descriptive Statistics
Table 1 shows the summary statistics of the numerical variables. Table 2 shows the correlation
matrix of variables in the full sample. Based on Table 2, government support exhibits positive
association with cross-border innovation. Considering firms’ tendency of exploitation, government
support is negatively related to the firms’ proportion of exploitation. In addition, government sup-
port is positively related to R&D capacity and other control variables. Furthermore, R&D capacity
has a strong positive association with cross-border innovation.
4.2. Hypothesis Testing Results
4.2.1. Government Support and Cross-Border Innovation. We show the DiD results
related to Hypotheses 1 and 2 in Table 3. We introduce the control variables in Model (1), the
main independent variables in Model (2), and the full model with the interaction term in Model
(3). Models (2) and (3) correspond to our empirical specification as Equations (1) and (2).

Table 1 Summary Statistics of Numerical Variables

Variables (N = 13, 077) mean sd median min max
1 Cross-Border Innovation 5.55 42.79 1.00 1.00 1563.00
2 Proportion of Exploitation 0.72 0.39 1.00 0.00 1.00
3 Government Support 0.68 0.47 1.00 0.00 1.00
4 R&D Capacity 9.51 53.52 3.00 1.00 1933.00
5 Collaboration Frequency 2.03 20.25 0.00 0.00 916.00
6 Number of Claims 12.08 6.48 11.00 1.00 78.00
7 Home-Country Citation 0.26 0.29 0.17 0.00 1.00
8 Number of Sections 1.88 1.09 2.00 1.00 9.00
Variables (N = 2, 938) mean sd median min max
9 Initial Exploitation 0.65 0.48 1.00 0.00 1.00
10 Initial Exploration 0.28 0.45 0.00 0.00 1.00
Variables (N = 390) mean sd median min max
11 Return on Assets 0.10 0.07 0.09 -0.16 0.49
12 R&D Spending 0.07 0.06 0.05 0.00 0.45
Table 2 Correlation Matrix of Variables 1 through 8
1 2 3 4 5 6 7 8
1 Cross-Border Innovation 1
2 Proportion of Exploitation -0.078∗∗∗ 1
3 Government Support 0.039∗∗∗ -0.029∗∗ 1
4 R&D Capacity 0.952∗∗∗ -0.091∗∗∗ 0.042∗∗∗ 1
5 Collaboration Frequency 0.630∗∗∗ -0.067∗∗∗ 0.029∗∗∗ 0.532∗∗∗ 1
6 Number of Claims 0.025∗∗ -0.073∗∗∗ 0.032∗∗∗ 0.035∗∗∗ 0.020∗ 1
7 Home-Country Citation 0.041∗∗∗ 0.070∗∗∗ 0.121∗∗∗ 0.057∗∗∗ 0.022∗ 0.021∗ 1
8 Number of Sections 0.338∗∗∗ -0.190∗∗∗ 0.078∗∗∗ 0.341∗∗∗ 0.301∗∗∗ 0.053∗∗∗ 0.045∗∗∗ 1
Pearson’s paired test. +
p < 0.1, ∗ p < 0.05, ∗∗
p < 0.01, ∗∗∗
p < 0.001 (two-tailed).
Model (2) in Table 3 shows that government support has a positive and significant effect on
cross-border innovation (β1 = 0.178, p < 0.01), suggesting that government support enables firms
to increase their innovation in the U.S. Thus, Hypothesis 1 is supported.
Model (3) verifies the moderating effect of R&D capacity. The results show that R&D capacity
has a significant and positive interaction effect with government support on cross-border innovation
(β2 = 0.040, p < 0.05), thus supporting Hypothesis 2. Figure 1 shows the interaction plot (left)
and the marginal effect plot (right)4 . The marginal effect plot is popularized by Brambor et al.
(2006) and is used to visualize how the effect of one variable varies (e.g., government support as
the upward solid line) according to the value of another variable (e.g., R&D capacity). The results
4
This marginal effect plot is created based on Kris Preacher’s recommendation at http://www.quantpsy.org/
interact/

Table 3 Fixed-Effects Poisson Regression on Cross-Border Innovation
Dependent Variable: Cross-Border Innovation

Model: (1) (2) (3)
Independent Variables
lg Collaboration Freq 0.307∗∗∗ 0.075∗∗∗ 0.073∗∗∗
(0.032) (0.018) (0.017)
lg Number of Claims −0.213∗∗∗ −0.147∗∗∗ −0.145∗∗∗
(0.058) (0.028) (0.029)
Home-country Citation 0.215∗ −0.113 −0.107
(0.105) (0.074) (0.073)
lg Number of Sections 1.247∗∗∗ 0.331∗∗∗ 0.328∗∗∗
(0.178) (0.028) (0.028)
Government Support 0.178∗∗ 0.098
(0.057) (0.066)
lg R&D Capacity 0.986∗∗∗ 0.951∗∗∗
(0.062) (0.059)
Gov Support × lg R&D Cap 0.040∗
(0.019)
Fixed-effects
Assignee Yes Yes Yes
Application Year Yes Yes Yes
Primary Section Yes Yes Yes
Fit statistics
Observations 13,077 13,077 13,077
Pseudo R2 0.87217 0.90694 0.89807
BIC 122,436.58 117,703.47 113,097.44
Standard errors (reported in parentheses) are clustered at the city of firms
level. The sample period is from 2005 to 2017. Independent variables are log-
transformed to avoid skewness. lg R&D Capacity is further scaled to avoid mul-
ticollinearity due to the interaction.
Signif. Codes: ***: 0.001, **: 0.01, *: 0.05, +: 0.1
and visualization imply that the positive effect of government support on cross-border innovation
is stronger for firms with a higher level R&D capacity. Thus, compared to firms with a lower R&D
capacity (lower absorptive capacity), those with a higher R&D capacity can more easily identify
the external resources and opportunities, assimilate and deploy them, and thus innovate.
4.2.2. Government Support and Shift in Cross-Border Innovation Strategy. We
hypothesize that government support can affect a firm’s strategic focus on cross-border innovation
as Hypotheses 3A and 3B. Specially, with government support and the resulting resources and ben-
efits, firms can shift their innovation portfolio to achieve superior performance, by simultaneously
exploring and exploiting innovation opportunities. Thus, previously exploitative firms develop a
larger share of exploratory innovation, and vice versa. Table 4 presents results pertaining to the
empirical specification (Equation (3)).

Figure 1 Interaction between Government Support and R&D Capacity on Cross-Border Innovation
A. Interaction Plot B. Marginal Effect Plot
Marginal Effect of Government Support

6
log(Number of Patents)
0.4
0.2
2
0.0
0
0 2 4 6 0 2 4 6
log(R&D Capacity) log(R&D Capacity)
Government Support 0 1
Table 4 Fixed-Effects Generalized Linear Model with Logit Link on

Proportion of Exploitation
Dependent Variable: Proportion of Exploitation

Model: (1) (2) (3)
Explr firms Balac firms Explt firms
lg R&D Capacity 0.125 −0.231∗ −0.114
(0.087) (0.105) (0.128)
lg Collaboration Freq 0.007 −0.011 0.136
(0.120) (0.138) (0.103)
lg Number of Claims −0.138 −0.114 −0.195
(0.193) (0.153) (0.187)
Home-country Citation 0.811+ 0.383 1.263∗∗
(0.442) (0.432) (0.415)
lg Number of Sections −0.269 0.072 −0.078
(0.187) (0.334) (0.202)
Government Support 1.410∗∗∗ 0.529∗ −6.010∗∗∗
(0.328) (0.226) (0.709)
Fixed-effects
Fit statistics
Observations 1,276 429 1,233
Pseudo R2 0.46298 0.1177 0.59369
BIC 3,683.94 2,433.84 3,953.86
level. The sample period is from 2005 to 2017. Independent variables are
log-transformed to avoid skewness.
Signif. Codes: ***: 0.001, **: 0.01, *: 0.05, +: 0.1
Table 4 presents the subgroup analysis. Model (1) in Table 4 shows the impact of government
support on initially-exploring firms. The coefficient of government support is positive and signif-

icant (β3 = 1.410, p < 0.001), supporting Hypothesis 3B. It implies that firms with initially high
exploratory innovation increase the proportion of exploitation after receiving support from the gov-
ernment. Meanwhile, we find empirical evidence supporting Hypothesis 3A. Model (3) in Table 4 is
for initially-exploiting firms. The results show a negative and significant coefficient of government
support (β3 = −6.010, p < 0.001), suggesting that firms with initially high exploitative innovation
reduce the proportion of exploitation after receiving support from the government. Overall, we
have verified that government support promotes a shift in firm’s innovation portfolio.
Interestingly, we find that for initially-balanced firms (Model (2) in Table 4), government support
increases proportion of exploitation (b = 0.529, p < 0.05). A plausible explanation may be that
emerging-market (Chinese) firms tend to avoid risks in an uncertain overseas market under fierce
competition, by developing prior firm knowledge and becoming more exploitative in cross-border
innovation.
4.3. Robustness Check
4.3.1. Propensity Score Matching. To augment comparability of firms between treated
and control groups, and to address the possibility that treated and control firms may differ along
unobservable characteristics, we employ the propensity score matching (PSM) (Rosenbaum and
Rubin 1983). Using the PSM approach allows us to generate a matched sample of untreated (i.e.,
control) firms that are similar to the treated firms, with respect to the observed characteristics
(Heckman et al. 1997).
We conduct two separate PSM at two levels – the firm level and the city level. First, at the firm
level, we adopt the matching algorithm of 1-nearest neighbor by considering firm characteristics
(e.g., collaboration frequency, number of claims, etc.). In doing so, we construct a sample of matched
control firms that are as similar as possible to the treated firms ex ante. The nearest neighbor is the
firm with the shortest Mahalanobis distance to the treated firm across matching characteristics.
The final matched sample contains 5, 159 firm-year combinations. Regression results are provided
as models (1) and (2) in Table 5.

Second, to conduct another PSM at the city level, we collected extra data based on Kou and
Liu (2017). The data contain city statistics including city economical, investment, and innovation
performance. The data have been used by Feng et al. (2019), Jiang et al. (2020), Liu and Li (2021),
and so on. We used the following variables in the data for matching: percent of secondary industry
employees, percent of tertiary industry employees, GDP, population, gross output, gross foreign
investment, fixed asset investment, scientific research expense, and educational expense. We also
included geographical information to search for geographically close pairs of cities. One-to-one
matching with the nearest neighbor is adopted. We selected the nearest neighbor for each treated
city on the basis of all the foregoing city-level variables, all computed as average over the four years
preceding the enactment of the policy (Flammer and Kacperczyk 2016). The nearest neighbor is
the city with the shortest Mahalanobis distance to the treated city. The final matched sample
contains 11, 112 firm-year combinations. Results are provided as models (3) and (4) in Table 5.
In general, in line with the main analysis, both PSMs show a significant improvement in
firms’ cross-border innovation with government support (b = 0.175, p < 0.01 in model (1) and b =
0.176, p < 0.01 in model (3)), and a significant moderating effect of R&D Capacity (b = 0.046, p < 0.1
in model (2) and b = 0.038, p < 0.05 in model (4)).
4.3.2. Test on Inclusion Restriction. In Section 3.3.2, we conceptually and contextually
discuss that our identification strategy satisfies the inclusion restriction. That is, the government
support changes firms’ R&D activities. In this subsection, we empirically test the inclusion restric-
tion by examining the effect of the government support on firms’ R&D spending. As previously
described, the new sample size is 390. We log-transformed R&D spending (i.e., lg(1+100*R&D
spending)) to comply to the OLS assumptions. We include lg(assets) and lg(number of employees)
into the model to control for additional firm characteristics on R&D spending. Table 5 Model (7)
presents the result. Nonetheless, even with this small sample, the effect of government support on
R&D spending is still significant (b = −0.245, p < 0.05 in model (7)). Therefore, the government
support does lead to distinct behavior of firm innovation than before. Our empirical identification
is valid in terms of inclusion restriction.

Table 5 Results for Robustness Checks and Post Hoc Analysis

Dependent Variable: # Innov # Innov # Innov # Innov # Innov # Innov R&D spend ROA
Model: (1) PSM-1 (2) PSM-1 (3) PSM-2 (4) PSM-2 (5) Trt-only (6) Trt-only (7) Incl. (8) P.H.
FE-Poisson FE-Poisson FE-Poisson FE-Poisson FE-Poisson FE-Poisson FE-OLS FE-OLS
lg Collaboration Freq 0.059∗∗ 0.056∗∗ 0.075∗∗∗ 0.074∗∗∗ 0.072∗∗∗ 0.071∗∗∗ −0.008 0.012
(0.020) (0.020) (0.018) (0.017) (0.017) (0.016) (0.018) (0.011)
lg Number of Claims −0.173∗∗∗ −0.168∗∗∗ -0.134∗∗∗ -0.130∗∗∗ −0.125∗∗∗ −0.122∗∗∗ 0.082 −0.012
(0.038) (0.039) (0.020) (0.021) (0.023) (0.023) (0.057) (0.026)
Home-country citation −0.045 −0.035 -0.146∗ -0.142∗ −0.170∗ −0.166∗ −0.018 −0.010
(0.155) (0.153) (0.072) (0.070) (0.069) (0.068) (0.043) (0.024)
lg Number of Sections 0.254∗∗∗ 0.250∗∗∗ 0.321∗∗∗ 0.316∗∗∗ 0.326∗∗∗ 0.322∗∗∗ 0.002 −0.017+
(0.039) (0.043) (0.034) (0.034) (0.036) (0.035) (0.042) (0.010)
Government Support 0.175∗∗ 0.103 0.176∗∗ 0.110+ 0.189∗∗ 0.139∗ −0.245∗ 0.083∗∗∗
(0.063) (0.073) (0.064) (0.064) (0.069) (0.064) (0.112) (0.017)
lg R&D Capacity 1.169∗∗∗ 1.129∗∗∗ 1.00∗∗∗ 0.967∗∗∗ 1.034∗∗∗ 1.002∗∗∗ 0.007 0.005
(0.088) (0.080) (0.063) (0.063) (0.061) (0.059) (0.038) (0.013)
Gov Support × lg R&D Cap 0.046+ 0.038∗ 0.033+
(0.025) (0.019) (0.019)
lg Assets −0.299+ 0.035
(0.156) (0.031)
lg Number of Employees 0.205 −0.005
(0.270) (0.060)
Fixed-effects
Assignee Yes Yes Yes Yes Yes Yes Yes Yes
Application Year Yes Yes Yes Yes Yes Yes Yes Yes
Primary Section Yes Yes Yes Yes Yes Yes Yes Yes
Fit statistics
Observations 5,159 5,159 11,112 11,112 9,758 9,758 390 390
Pseudo R2 or R2 0.9384 0.93846 0.90755 0.90759 0.92166 0.91403 0.92608 0.36083
BIC 38,575.01 38,568.07 92,547.3 92,542.9 82,447.22 79,353.50 NA NA
Standard errors (reported in parentheses) are clustered at the city of firms level. The sample period is from 2005 to 2017. Independent
variables are log-transformed to avoid skewness. lg R&D Capacity is further scaled to avoid multicollinearity due to the interaction.
Signif. Codes: ***: 0.001, **: 0.01, *: 0.05, +: 0.1
4.3.3. Parallel Trends Assumption and Falsification Test. This subsection empirically
verifies the parallel trends assumption by conducting a falsification test, as described in Section
3.3.2. Table 6 presents the falsification test results. The analysis demonstrates that the trend of
filing more foreign-country (U.S.) patents does not occur before the treatment (i.e., the policy
enactment). Models (1) and (2) in Table 6 are for comparison purpose to Model (3), which assesses
the dynamics of the treatment effect.
In Model (3) of Table 6, we replace the treatment dummy with a set of eight dummy variables
indicating the four years prior to the treatment (i.e., Government Support (-4) through (-1)); the
year of the treatment (Government Support (0)); the first, second, and third or more years after
the treatment (Government Support (1) through (3+), respectively). As shown, for cross-border
innovation, the coefficients of all pre-treatment dummies are small and insignificant. This finding

Figure 2 Parallel Trend Analysis

Model based (unconditional) trends Non−parametric trends
1.1 4
1.0
3
Log Num Pat
Log Num Pat

0.9
0.8 2
0.7
−4 −3 −2 −1 0 1 2 3 4 5 −3 −2 −1 0 1 2 3 4 5
Period Period
Group: Control Group Treatment Group Group: Control Group Treatment Group
is reassuring, because it shows that there is no preexisting difference in the trends between the
treated and control groups. Our visual check on the trend also confirms the finding (Figure 2).
Thus, we are more confident that the results are not driven by other confounding factors or reverse
causality.
We find a marginally significant effect in the year of the treatment, indicating that the policy
and government support may take effect on cross-border innovation in the same year. In fact, the
policies were approved in January in years such as 2009 and 2010, leaving ample time for firms
to innovate and develop in the overseas market. Finally, the coefficients of Government Support
(1) and afterwards remain large and significant, indicating that the government support has a
long-lasting effect on firm’s cross-border innovation.
4.3.4. Removing Firms that are Never Treated. In Section 3.3.2, we describe to remove
firms that are never treated as a strategy to mitigate the effect of unobserved differences between
treated and control firms on both innovation and the policy enactment. This subsection re-estimate
the DiD specification using only the eventually treated firms. The new sample has 9, 758 firm-year
combinations. Models (5) and (6) in Table 5 present the re-estimation results. We find that the
results remain consistent with the main analysis results, indicating that our identification strategy
is not affected by unobserved differences between treated and control firms.

Table 6 Parallel Trends Assumption and Falsification Test (FE-Poisson)

Dependent Variable: Cross-Border Innovation
Model: (1) (2) (3)
Variables
Government Support 0.669∗ 0.178∗
(0.334) (0.089)
Government Support (-4) -0.066
(0.129)
Government Support (-3) 0.071
(0.143)
(0.159)
(0.198)
Government Support (0) 0.372+
(0.198)
Government Support (1) 0.487∗
(0.201)
Government Support (2) 0.508∗
(0.232)
Government Support (3+) 0.511∗
(0.225)
Control Variables No Yes Yes
Fixed-effects
Fit statistics
Observations 13,077 13,077 13,077
Pseudo R2 0.82288 0.89802 0.89811
BIC 140,236.55 113,104.32 113,139.41
level. The sample period is from 2005 to 2017.
Signif. Codes: ***: 0.001, **: 0.01, *: 0.05, +: 0.1
4.3.5. Alternative Measure for Proportion of Exploitation. In contrast to averaging
the patent’s level of exploitation directly used in the main analysis, we can alternatively count
the number of exploitative patents, and obtain the share of exploitative patents among all patents
for a firm-year combination. In this subsection, we re-estimate Equation (3) by using the share of
exploitative patents as the dependent variable.
Following Benner and Tushman (2002), we construct the alternative measure of % exploitative
patents at three levels. The measure at the 100 percent level is the number of patents with 100
percent of their citations to familiar patents, that is, patents cited by the firm in an earlier inno-
vation effort and/or self-citations. We also construct measures at the 80 percent and 60 percent

levels, represented as the number of patents by year for each firm that constitute 80 percent or
more and 60 percent or more, respectively, of the citations to prior knowledge of the focal firm. In
this sense, we captured a firm’s innovation profile by assessing the number of patents in each of
these categories, year by year.
Table 7 gives the results for the robustness check. Models (1) and (2) consider % exploitative
patents at ≥ 60%, (3) and (4) at ≥ 80%, and (5) and (6) at 100% levels, respectively. Models
(1), (3), and (5) focus on the initial-exploiting group, while models (2), (4), and (6) focus on the
initial-exploring group. We focus on the coefficients of government support. Models (1), (3), and (5)
consistently return negative coefficients, indicating that previously exploitative firms will reduce
the share of exploitative innovation (patents) overseas. On the contrary but as expected, models
(2), (4), and (6) return positive coefficients of government support, supporting the notion that
previously exploratory firms will develop more cross-border exploitative patents, after receiving
the government support. In general, the results are consistent with the main results. Our findings
are robust to different operationalization of the dependent variable.
4.4. Post Hoc Analysis
This section explores how government support affects the exploitative innovation vs. the
exploratory innovation (Section 4.4.1) and the return-on-assets of firms (Section 4.4.2) in a post
hoc manner without the development of hypotheses.
4.4.1. Number of Exploitation and Exploration. In the main analysis (Section 4.2.2),
we differentiate between firms’ innovation strategies and examine how government support affects
firms’ tendency to exploit. However, the dependent variable is a proportion, which cannot reflect
the change in specific numbers of exploitative and exploratory innovations. It remains unclear
whether government support increases or decreases the specific number of either type of patents. In
fact, this finding could be important and meaningful as policy makers and firm managers may not
intend to increase one kind of innovation at the sacrifice of the other kind (He and Wong 2004).
Therefore, we explore how government support affects numbers of exploitative and exploratory
innovations separately.

Table 7 Robustness Check on Alternative Measures for Proportion of Exploitation (FE-Logit)
Dependent Variable: Share of ≥60% Explt Share of ≥80% Explt Share of 100% Explt
Model: (1) Ini-Explt (2) Ini-Explr (3) Ini-Explt (4) Ini-Explr (5) Ini-Explt (6) Ini-Explr
Government Support -6.01∗∗∗ 1.56∗∗ -6.40∗∗∗ 1.38∗ -6.36∗∗∗ 1.29∗
(0.904) (0.597) (0.967) (0.554) (0.739) (0.623)
lg R&D Capacity -0.275∗ 0.222 -0.371∗∗ 0.257∗ -0.300∗ 0.262+
(0.118) (0.146) (0.139) (0.128) (0.134) (0.149)
lg Collaboration Freq -0.056 -0.095 -0.223 -0.113 -0.247 -0.095
(0.150) (0.134) (0.192) (0.156) (0.235) (0.179)
lg Number of Claims 0.020 -0.285 -0.054 -0.097 -0.191 -0.107
(0.454) (0.267) (0.477) (0.300) (0.358) (0.185)
Home-country Citation 1.22∗∗ 0.475 1.60∗∗∗ 0.633 1.84∗∗∗ 0.950+
(0.417) (0.364) (0.467) (0.460) (0.502) (0.534)
lg Number of Sections 0.307 -0.189 0.414 -0.252 0.264 -0.259
(0.254) (0.365) (0.283) (0.348) (0.303) (0.333)
Fixed-effects
Assignee Yes Yes Yes Yes Yes Yes
Application Year Yes Yes Yes Yes Yes Yes
Primary Section Yes Yes Yes Yes Yes Yes
Fit statistics
Observations 783 875 853 850 877 840
Pseudo R2 0.57402 0.48116 0.55510 0.50243 0.57700 0.51832
BIC 2,354.7 2,100.3 2,584.5 1,970.4 2,648.7 1,908.1
Standard errors (reported in parentheses) are clustered at the city of firms level. The sample period is from 2005 to 2017. Independent
variables are log-transformed to avoid skewness.
Signif. Codes: ***: 0.001, **: 0.01, *: 0.05, +: 0.1
Following Benner and Tushman (2002) and adopting a similar measure as in Section 4.3.5, we
count the patents that fall into 6 categories, namely 0%, ≤ 20%, ≤ 40%, ≥ 60%, ≥ 80%, and 100%
dependent on prior firm knowledge. Patents in the first three categories are collectively known as
exploratory patents, as they rely little on prior firm knowledge. Correspondingly, patents in the
last three categories are known as exploitative patents as they depend on prior firm knowledge. We
employ a specification similar to equation (1) but replace the dependent variable with the counts
of patents in the 6 categories. Table 8 presents the results. Models (1) through (6) correspond to
the 6 categories described previously.
The results indicate that the government support does not affect the number of exploratory
innovations. However, the government support marginally increases the number of exploitative
innovations at the 60% and 80% levels. Therefore, putting it together, the post hoc analysis implies
that, in general, exploitative innovation gains more attention when firms receive government sup-
port than exploratory innovation.

Table 8 Post Hoc Analysis on the Effect of Government Support on Numbers of Explt and Explr Innovations
Dependent Variables: # P 0% # P ≤ 20% # P ≤ 40% # P ≥ 60% # P ≥ 80% # P 100%
Model: (1) (2) (3) (4) (5) (6)
Variables
Government Support 0.140 0.131 0.142 0.217+ 0.218+ 0.190
(0.108) (0.093) (0.094) (0.114) (0.128) (0.127)
lg R&D Capacity 0.989∗∗∗ 1.001∗∗∗ 1.012∗∗∗ 0.803∗∗∗ 0.800∗∗∗ 0.804∗∗∗
(0.040) (0.040) (0.040) (0.064) (0.058) (0.054)
lg Collaboration Freq 0.002 0.006 0.010 0.138∗∗∗ 0.137∗∗∗ 0.140∗∗∗
(0.018) (0.018) (0.016) (0.027) (0.028) (0.030)
lg Number of Claims −0.141∗∗ −0.157∗∗∗ −0.147∗∗ −0.094∗∗ −0.069∗ −0.061
(0.047) (0.046) (0.049) (0.029) (0.033) (0.038)
Home-country Citation −0.422∗∗∗ −0.502∗∗∗ −0.548∗∗∗ 0.403∗∗∗ 0.423∗∗∗ 0.443∗∗∗
(0.078) (0.098) (0.112) (0.071) (0.070) (0.072)
lg Number of Sections 0.339∗∗∗ 0.310∗∗∗ 0.297∗∗∗ 0.442∗∗∗ 0.452∗∗∗ 0.450∗∗∗
(0.035) (0.034) (0.033) (0.073) (0.073) (0.069)
Fixed-effects
Assignee Yes Yes Yes Yes Yes Yes
Application Year Yes Yes Yes Yes Yes Yes
Primary Section Yes Yes Yes Yes Yes Yes
Fit statistics
Observations 6,159 6,275 6,391 12,672 12,567 12,538
Pseudo R2 0.87156 0.87808 0.8846 0.79273 0.78476 0.78103
BIC 34,481.17 35,720.08 37,078.08 104,920.52 103,635.37 103,227.20
Standard errors (reported in parentheses) are clustered at the city of firms level. The sample period is from 2005 to
2017.
Signif. Codes: ***: 0.001, **: 0.01, *: 0.05, +: 0.1
4.4.2. Government Support and Firm ROA. The main analysis examines how govern-
ment support affects firms’ cross-border innovation performance. This subsection explores whether
the support improves firms’ return on assets (ROA) as an important financial performance indica-
tor. Based on the matched sample between the main data and Compustat (390 firm-year combina-
tions as described earlier), we conduct an analysis on the effect of government support and replace
the dependent variable with ROA. Similar to the model in Section 4.3.2, we include lg(assets) and
lg(number of employees) into the model to control firm-level factors that may affect ROA. We
report the results in Model (8) in Table 5.
The results indicate that government support has a significant and positive effect on ROA (b =
0.083, p < 0.001). The empirical results here suggest that government support can indeed and
eventually will affect a firm’s operations and financial performance, potentially through affecting
the R&D activities. Linking to our finding that the government support increases firms’ cross-border
innovation, we obtain strong empirical evidence to conclude that government support can provide

not only innovation benefits, but also higher operating return and profitability. This inference echos
Schilling and Hill (1998) and Peng et al. (2014) that external source is an essential driver of not
only NPD success but also a firm’s overall survival and competitiveness.
5. Discussion and Conclusion

5.1. Findings and Theoretical Contributions
Cross-border innovation is an indispensable component in firm’s global operations. Both emerg-
ing and advanced markets have implemented / are implementing innovation policies to support
firm’s innovation and expansion into the global market. From the conceptual perspective of slack,
we conceptualize government support as slack resources. First, we show that government support
stimulates cross-border innovation in the uncertain and competitive global market. We add clarity
to a mixed literature regarding the effect of government support and slack resources on innovation
performance. Furthermore, we integrate slack resource with absorptive capacity and find govern-
ment support makes strong firms stronger. This finding demonstrates a contingency of the effect
of government support and answers the “call for a contingency perspective to specify the nature
of slack when discussing its impact on firm performance” (Tan and Peng 2003, p.1249). Finally,
we explore the role of government support in firm’s innovation strategy overseas. In line with the
notion to balance between exploration and exploitation, this study verifies that firms shift their
cross-border innovation focus with government support in their global operations.
This study contributes to the OM literature in the following aspects. First, this study examines
public policy and government support, addressing the “need to examine operational decisions with
policy considerations” (Joglekar et al. 2016, p.1977). Building on the previous studies on slack
resources, this study extends our understanding of slack to government support in the context
of global operations (cross-border innovation). While slack is traditionally understood as internal
slack resources, we add a new perspective of external government. To the best of our knowledge,
this is the first study in the operations management field to understand the role of government
support through the conceptual lens of slack, echoing the importance of using slack resources as
theoretical perspectives (Hitt et al. 2016).

Second, there has been long debate on the effects of slack resources on firm performance in both
OM and organization literature. In addition, the policy literature also exhibits inconclusive findings
for the effect of government support on firm innovation. This study demonstrates a positive effect
of government support on firms’ cross-border innovation, supporting the positive effect of slack
on firm’s global innovation. This finding aligns with the consideration of government as a critical
external source for firm innovation (Gaimon and Bailey 2013, Gaimon et al. 2017, Peng et al. 2014).
Moreover, through identifying unique characteristics of cross-border innovation, this study echoes
Kavadias and Hutchison-Krupat (2020) that firms’ innovation process and activities are subject
to the external political environment and general ecosystem. In sum, government support has the
potential to help firms strengthen their innovation processes (Yiu et al. 2020, Linderman et al.
2004) and mitigate uncertainty and risk in innovation projects (Yiu et al. 2020, Yeung et al. 2007).
Third, we clarify the contingency of government support by integrating slack resource with
absorptive capacity. Absorptive capacity provides one of the key explanations for why the litera-
ture has mixed findings regarding government support and slack resources. Specifically, absorptive
capacity explains an important practical observation that much heterogeneity exists in the inno-
vation performance of firms in the developing East Asia, despite those firms receive government
support (Cirera et al. 2021). As firms expand into the competitive global market, absorptive capac-
ity plays an increasingly important role in addressing the pressures to “re-examine their own ‘global’
value chains, re-evaluate their cross-border investments strategies, re-assess their innovation and
technology flows, and re-consider their strategic partnerships from a new perspective” (Petricevic
and Teece 2019, p.1488).
Fourth, this study shows how firms shift their strategic focus on cross-border innovation after
receiving government support. Echoing O’Reilly and Tushman (2008) that ambidexterity is a
dynamic capability, this study is one of the few that longitudinally examine the evolution of innova-
tion strategy. We find that, with government support, firms shift their innovation portfolio towards
a balance between exploitation and exploration. This finding is in line with the notion that firms
who aim to achieve long-term competitiveness balance between their exploratory and exploitative
efforts (Adler et al. 2009, He and Wong 2004, Patel et al. 2012).

5.2. Practical Implications
Our research findings have implications for both managers and policy makers. For managers, we
highlight the positive effect of government support on firms’ innovation process. Thus, managers
may need to pay attention to the external political and regulatory environment and integrate their
internal practices with the external dynamics to achieve a better innovation performance. Partic-
ularly, government support can facilitate firms’ innovation in the international market. Managers
should consider their internal R&D capacity (e.g., talent capital) to better utilize the external
resources. In addition, firms may need to consider a potential strategic shift resulting from gov-
ernment support and align their short-term (exploitation)with long-term (exploration) goals. In
sum, opportunities and external resources, internal capability, and current and future innovation
strategies for new products and processes are the main factors for firms to consider before making
informed innovation decisions.
For policy makers, this study helps clarify the benefits of government support to firms’ cross-
border innovation. Depending on the city’s development plan and global ambition, the government
should decide whether to give out financial stimulus and other institutional benefits to enhance
firms’ and cities’ innovation capabilities. The benefits can be even larger when firms have a larger
talent pool of R&D employees. Therefore, government and policy makers should design better plans
to attract more new talents and support firms’ recruitment to achieve full innovation benefits. In
addition, as firms can shift their innovation focus with government support, our findings suggest
government take initiatives to promote firms’ innovation in general and to foster balanced inno-
vation portfolios between exploration and exploitation in particular. In this way, the policy can
become more effective and potentially achieve higher cost-efficiency. Nonetheless, policy makers
should be aware that this policy intervention makes the strong innovative firms stronger, which
could have implications for the competitive dynamics of an industry.
Although developing East Asia (e.g., China) has been “home to some leading innovative com-
panies that might rival those in high-income countries, there remains a large technological divide

between and within the region’s countries” (Cirera et al. 2021, p.105). National and regional gov-
ernment still needs to develop innovation policies to support firms to advance their technological
development. The support is critical, because emerging-market firms face major informal con-
straints and uncertainties, which may constitute barriers to firms’ capability development and
further efforts in technological investment, adoption of new practices, assimilation of external
knowledge, and achieve higher technological competitiveness. Recent COVID-19 pandemic further
intensifies related uncertainty for these firms. As Cirera et al. (2021) suggests, “Nevertheless, it
highlights the role of innovation policy to not only support firms pushing the frontier but also those
firms investing in catching up. Given that the aggregate contribution made by innovation and new
technologies to productivity, growth, and welfare is largely determined by how well and how rapidly
innovations diffuse within countries, policy needs to actively promote diffusion by nurturing and
developing domestic innovation capacity” (p.105).
5.3. Limitation and Future Research
This study has limitation that can encourage future research opportunities. First, this study focuses
on U.S. patents from Chinese firms. Focusing on China as the single context may ignore the
inventive efforts by other emerging markets such as India and Malaysia. However, focusing on a
single country as the context offers an advantage to reduce the threat of heterogeneity (Joglekar
et al. 2016). Although context-specific and evidence-driven studies have yielded innovative theories
and models for best in class performance (Joglekar et al. 2016), we advocate future research to
examine cross-border innovation in multi-context or other countries. Similarly, it is important for
firms to extend the scope beyond the U.S. towards other international markets. Future research
can also examine how government support enables emerging-market firms to penetrate into other
global markets like Japan, Europe, and even other emerging markets.
Second, this study focuses on the innovation performance through patent filing, which captures
the earlier stage of ideas and inventions for new products and processes. However, we do not
examine the product and service development process or the launching of products and services

(i.e., later stages). It would be critical to further understand how government support affects the
new product development (NPD) and project portfolio management in details. More research is
needed to fully understand how government support intervenes in firms’ internal operations (e.g.,
process management, design, R&D activities, team collaboration) and external operations (e.g.,
collaboration with partners in the local communities and in the global supply chains).
Third, the policy in our context can affect foreign firms (multinationals) in the treated city as
well. It would fill in the research gap to examine how government support affects foreign firms’
innovation in China. Moreover, one could also examine whether there is a spill-over effect such that
government support would change the interactions (e.g., NPD collaborations) between local and
foreign firms.
Finally, as this study focuses on cross-border innovation, it would be worthwhile to examine
whether government support makes firms more competitive in local cities and in the domestic
market. It is yet-to-be explored that whether government support increases firms’ cross-border
innovation at the cost of reducing domestic innovation. We view this topic goes beyond the scope
of this study and leave it for future research. Nonetheless, only by integrating the global piece with
the local one can we draw a full picture of the effect of government support on firms’ innovation
activities and performance.
References
Acemoglu D, Akcigit U, Alp H, Bloom N, Kerr W (2018) Innovation, reallocation, and growth. American
Economic Review 108(11):3450–91.
Adler PS, Benner M, Brunner DJ, MacDuffie JP, Osono E, Staats BR, Takeuchi H, Tushman M, Winter SG
(2009) Perspectives on the productivity dilemma. Journal of Operations Management 27(2):99–113.
Aerts K, Schmidt T (2008) Two for the price of one?: Additionality effects of r&d subsidies: A comparison
between flanders and germany. Research Policy 37(5):806–822.
Ahuja G (2000) Collaboration networks, structural holes, and innovation: A longitudinal study. Administra-
tive science quarterly 45(3):425–455.
Akkaya D, Bimpikis K, Lee H (2020) Government interventions to promote agricultural innovation. Manu-
facturing & Service Operations Management .
Albertoni F, Elia S, Massini S, Piscitello L (2017) The reshoring of business services: Reaction to failure or
persistent strategy? Journal of World Business 52(3):417–430.
Alcácer J, Zhao M (2012) Local R&D strategies and multilocation firms: The role of internal linkages.
Management Science 58(4):734–753.
Angrist JD, Pischke JS (2008) Mostly harmless econometrics: An empiricist’s companion (Princeton univer-
sity press).

Angrist JD, Pischke JS (2010) The credibility revolution in empirical economics: How better research design
is taking the con out of econometrics. Journal of economic perspectives 24(2):3–30.
Argilés-Bosch JM, Garcia-Blandon J, Martinez-Blasco M (2016) The impact of absorbed and unabsorbed
slack on firm profitability: Implications for resource redeployment. Resource redeployment and corporate
strategy (Emerald Group Publishing Limited).
Atanassov J (2013) Do hostile takeovers stifle innovation? evidence from antitakeover legislation and corpo-
rate patenting. The Journal of Finance 68(3):1097–1131.
Bayus BL, Erickson G, Jacobson R (2003) The financial rewards of new product introductions in the personal
computer industry. Management Science 49(2):197–210.
Beckman CM, Haunschild PR, Phillips DJ (2004) Friends or strangers? firm-specific uncertainty, market
uncertainty, and network partner selection. Organization science 15(3):259–275.
Bellamy MA, Ghosh S, Hora M (2014) The influence of supply network structure on firm innovation. Journal
of Operations Management 32(6):357–373.
Benner MJ, Tushman M (2002) Process management and technological innovation: A longitudinal study of
the photography and paint industries. Administrative science quarterly 47(4):676–707.
Berry H (2014) Global integration and innovation: multicountry knowledge generation within mnc s. Strategic
Management Journal 35(6):869–890.
Bertrand M, Duflo E, Mullainathan S (2004) How much should we trust differences-in-differences estimates?
The Quarterly journal of economics 119(1):249–275.
Bertrand M, Mullainathan S (2003) Enjoying the quiet life? corporate governance and managerial preferences.
Journal of political Economy 111(5):1043–1075.
Block F, Keller MR (2009) Where do innovations come from? transformations in the us economy, 1970–2006.
Socio-Economic Review 7(3):459–483.
Bourgeois III LJ (1981) On the measurement of organizational slack. Academy of Management review
6(1):29–39.
Bradley SW, Shepherd DA, Wiklund J (2011) The importance of slack for new organizations facing
‘tough’environments. Journal of Management Studies 48(5):1071–1097.
Brambor T, Clark WR, Golder M (2006) Understanding interaction models: Improving empirical analyses.
Political analysis 63–82.
Breznitz D, Murphree M (2011) Run of the red queen: Government, innovation, globalization, and economic
growth in China (Yale University Press).
Bromiley P (1991) Testing a causal model of corporate risk taking and performance. Academy of Management
journal 34(1):37–59.
Brouthers KD, Brouthers LE, Werner S (2008) Resource-based advantages in an international context.
Journal of management 34(2):189–217.
Carlsson B (2006) Internationalization of innovation systems: A survey of the literature. Research policy
35(1):56–67.
Chaminade C, Vang J (2008) Globalisation of knowledge production and regional innovation policy: Sup-
porting specialized hubs in the bangalore software industry. Research policy 37(10):1684–1696.
Chandrasekaran A, Linderman K, Sting FJ, Benner MJ (2016) Managing R&D project shifts in high-tech
organizations: A multi-method study. Production and Operations Management 25(3):390–416.
Chao RO, Kavadias S (2008) A theoretical framework for managing the new product development portfolio:
When and how to use strategic buckets. Management science 54(5):907–921.
Chapman G, Hewitt-Dundas N (2018) The effect of public support on senior manager attitudes to innovation.
Technovation 69:28–39.
Chen CJ, Guo RS, Hsiao YC, Hu KK (2018) The strategic choice for applying government subsidized r&d:
The relationship among organizational resources and capabilities, strategy, and performance. 2018

Portland International Conference on Management of Engineering and Technology (PICMET), 1–10

(IEEE).
Cheng JL, Kesner IF (1997) Organizational slack and response to environmental shifts: The impact of
resource allocation patterns. Journal of management 23(1):1–18.
Choo AS, Chandrasekaran A, Chinaprayoon C (2020) The role of domestic and foreign knowledge inflows
on the relationship between R&D portfolio mix and innovation outcomes: An empirical study of man-
ufacturing firms in an emerging economy. Decision Sciences 51(2):349–394.
Cirera X, Mason AD, de Nicola F, Kuriakose S, Mare DS, Tran TT (2021) The innovation imperative for
developing east asia.
Cirillo B (2019) External learning strategies and technological search output: Spinout strategy and corporate
invention quality. Organization Science 30(2):361–382.
Coeurderoy R, Murray G (2008) Regulatory environments and the location decision: evidence from the
early foreign market entries of new-technology-based firms. Journal of International Business Studies
39(4):670–687.
Cohen WM, Levinthal DA (1990) Absorptive capacity: A new perspective on learning and innovation. Admin-
istrative science quarterly 128–152.
Contractor FJ, Kundu SK, Hsu CC (2003) A three-stage theory of international expansion: The link
between multinationality and performance in the service sector. Journal of international business stud-
ies 34(1):5–18.
Corbett CJ, Montes-Sancho MJ, Kirsch DA (2005) The financial impact of ISO 9000 certification in the
united states: An empirical analysis. Management science 51(7):1046–1059.
Correa P, Andrés L, Borja-Vega C (2013) The impact of government support on firm R&D investments: a
meta-analysis (The World Bank).
Currie WL, Michell V, Abanishe O (2008) Knowledge process outsourcing in financial services:: The vendor
perspective. European Management Journal 26(2):94–104.
Demirbag M, Glaister KW (2010) Factors determining offshore location choice for r&d projects: A compar-
ative study of developed and emerging regions. Journal of Management Studies 47(8):1534–1560.
Devarakonda SV, McCann BT, Reuer JJ (2018) Marshallian forces and governance externalities: Loca-
tion effects on contractual safeguards in research and development alliances. Organization Science
29(6):1112–1129.
Dewar RD, Dutton JE (1986) The adoption of radical and incremental innovations: An empirical analysis.
Management science 32(11):1422–1433.
Dhanorkar S (2019) Environmental benefits of internet-enabled c2c closed-loop supply chains: A quasi-
experimental study of craigslist. Management Science 65(2):660–680.
Dunning JH (1980) Toward an eclectic theory of international production: Some empirical tests. Journal of
international business studies 11(1):9–31.
Feng Y, Wang X, Du W, Wu H, Wang J (2019) Effects of environmental regulation and fdi on urban
innovation in china: A spatial durbin econometric analysis. Journal of Cleaner Production 235:210–224.
Flammer C, Kacperczyk A (2016) The impact of stakeholder orientation on innovation: Evidence from a
natural experiment. Management Science 62(7):1982–2001.
Fourné SP, Rosenbusch N, Heyden ML, Jansen JJ (2019) Structural and contextual approaches to ambidex-
terity: A meta-analysis of organizational and environmental contingencies. European Management Jour-
nal 37(5):564–576.
Gaimon C, Bailey J (2013) Knowledge management for the entrepreneurial venture. Production and Opera-
tions Management 22(6):1429–1438.
Gaimon C, Hora M, Ramachandran K (2017) Towards building multidisciplinary knowledge on management
of technology: An introduction to the special issue. Production and Operations Management 26(4):567–
578.

Gann DM, Salter AJ (2000) Innovation in project-based, service-enhanced firms: the construction of complex
products and systems. Research policy 29(7-8):955–972.
Genin AL, Tan J, Song J (2020) State governance and technological innovation in emerging economies:
State-owned enterprise restructuration and institutional logic dissonance in china’s high-speed train
sector. Journal of International Business Studies 1–25.
Gittelman M (2008) A note on the value of patents as indicators of innovation: Implications for management
research. Academy of Management Perspectives 22(3):21–27.
Greve HR (2003) A behavioral theory of r&d expenditures and innovations: Evidence from shipbuilding.
Academy of management journal 46(6):685–702.
Griliches Z, Pakes A, Hall BH (1987) The value of patents as indicators of inventive activity. Dasgupta
P, Stoneman P, eds., Economic Policy and Technological Performance, 97–124 (Cambridge University
Press), URL http://dx.doi.org/10.1017/CBO9780511559938.006.
Guo D, Guo Y, Jiang K (2016) Government-subsidized r&d and firm innovation: Evidence from china.
Research policy 45(6):1129–1144.
Gupta AK, Smith KG, Shalley CE (2006) The interplay between exploration and exploitation. Academy of
management journal 49(4):693–706.
Gupta H, Barua MK (2016) Identifying enablers of technological innovation for indian msmes using best–
worst multi criteria decision making method. Technological Forecasting and Social Change 107:69–79.
Hage J (1980) Theories of organizations: Form, process, and transformation (John Wiley & Sons).
Hanaki N, Nakajima R, Ogura Y (2010) The dynamics of R&D network in the IT industry. Research policy
39(3):386–399.
Harhoff D, Reitzig M (2004) Determinants of opposition against epo patent grants—the case of biotechnology
and pharmaceuticals. International journal of industrial organization 22(4):443–480.
He ZL, Wong PK (2004) Exploration vs. exploitation: An empirical test of the ambidexterity hypothesis.
Organization science 15(4):481–494.
Heckman JJ, Ichimura H, Todd PE (1997) Matching as an econometric evaluation estimator: Evidence from
evaluating a job training programme. The review of economic studies 64(4):605–654.
Hendricks KB, Singhal VR, Zhang R (2009) The effect of operational slack, diversification, and vertical
relatedness on the stock market reaction to supply chain disruptions. Journal of operations management
27(3):233–246.
Henisz WJ, Delios A (2001) Uncertainty, imitation, and plant location: Japanese multinational corporations,
1990-1996. Administrative science quarterly 46(3):443–475.
Hitt MA, Xu K, Carnes CM (2016) Resource based theory in operations management research. Journal of
Operations Management 41:77–94.
Ho TH, Lim N, Reza S, Xia X (2017) Om forum—causal inference models in operations management.
Manufacturing & Service Operations Management 19(4):509–525.
Hsuan J, Mahnke V (2011) Outsourcing r&d: a review, model, and research agenda. R&d Management
41(1):1–7.
Huang KG, Li J (2019) Adopting knowledge from reverse innovations? transnational patents and signaling
from an emerging economy. Journal of International Business Studies 50(7):1078–1102.
Hurtado-Torres NE, Aragón-Correa JA, Ortiz-de Mandojana N (2018) How does r&d internationalization
in multinational firms affect their innovative performance? the moderating role of international collab-
oration in the energy industry. International Business Review 27(3):514–527.
Jansen JJ, Van Den Bosch FA, Volberda HW (2006) Exploratory innovation, exploitative innovation, and
performance: Effects of organizational antecedents and environmental moderators. Management science
52(11):1661–1674.
Jiang L, He S, Cui Y, Zhou H, Kong H (2020) Effects of the socio-economic influencing factors on so2
pollution in chinese cities: A spatial econometric analysis based on satellite observed data. Journal of
environmental management 268:110667.

Jiang W, Wang AX, Zhou KZ, Zhang C (2019) Stakeholder relationship capability and firm innovation: A
contingent analysis. Journal of Business Ethics 1–15.
Joglekar NR, Davies J, Anderson EG (2016) The role of industry studies and public policies in production
and operations management. Production and Operations Management 25(12):1977–2001.
Jugend D, Fiorini PDC, Armellini F, Ferrari AG (2020) Public support for innovation: A systematic review
of the literature and implications for open innovation. Technological Forecasting and Social Change
156:119985.
Kalkanci B, Rahmani M, Toktay LB (2019) The role of inclusive innovation in promoting social sustainability.
Production and Operations Management 28(12):2960–2982.
Kang KN, Lee YS (2008) What affects the innovation performance of small and medium-sized enterprises
(smes) in the biotechnology industry? an empirical study on korean biotech smes. Biotechnology letters
30(10):1699.
Kang KN, Park H (2012) Influence of government R&D support and inter-firm collaborations on innovation
in korean biotechnology smes. Technovation 32(1):68–78.
Kavadias S, Hutchison-Krupat J (2020) A framework for managing innovation. Pushing the Boundaries:
Frontiers in Impactful OR/OM Research, 202–228 (INFORMS).
Kavadias S, Ulrich KT (2020) Innovation and new product development: Reflections and insights from the
research published in the first 20 years of manufacturing & service operations management. Manufac-
turing & Service Operations Management 22(1):84–92.
Kortmann S, Gelhard C, Zimmermann C, Piller FT (2014) Linking strategic flexibility and operational effi-
ciency: The mediating role of ambidextrous operational capabilities. Journal of Operations Management
32(7-8):475–490.
Kou Z, Liu X (2017) Find report on city and industrial innovation in china (2017). Shanghai: Fudan Institute
of Industrial Development, School of Economics, Fudan University .
Kovach JJ, Hora M, Manikas A, Patel PC (2015) Firm performance in dynamic environments: The role of
operational slack and operational scope. Journal of Operations Management 37:1–12.
Kristal MM, Huang X, Roth AV (2010) The effect of an ambidextrous supply chain strategy on combinative
competitive capabilities and business performance. Journal of Operations Management 28(5):415–429.
Lanjouw JO, Schankerman M (2001) Characteristics of patent litigation: a window on competition. RAND
journal of economics 129–151.
Lavie D, Stettner U, Tushman ML (2010) Exploration and exploitation within and across organizations.
Academy of Management annals 4(1):109–155.
Lawrence A, Nehler T, Andersson E, Karlsson M, Thollander P (2019) Drivers, barriers and success factors
for energy management in the swedish pulp and paper industry. Journal of cleaner production 223:67–
82.
Leiponen A, Helfat CE (2010) Innovation objectives, knowledge sources, and the benefits of breadth. Strategic
management journal 31(2):224–236.
Lerner J (1994) The importance of patent scope: an empirical analysis. The RAND Journal of Economics
319–333.
Lerner J (2000) The government as venture capitalist: the long-run impact of the sbir program. The Journal
of Private Equity 3(2):55–78.
Levinthal DA, March JG (1993) The myopia of learning. Strategic management journal 14(S2):95–112.
Linderman K, Schroeder RG, Zaheer S, Liedtke C, Choo AS (2004) Integrating quality management practices
with knowledge creation processes. Journal of operations management 22(6):589–607.
Liu C, Li L (2021) Place-based techno-industrial policy and innovation: Government responses to the infor-
mation revolution in china. China Economic Review 66:101600.
Liu J, Bharadwaj A (2020) Drug abuse and the internet: Evidence from craigslist. Management Science
66(5):2040–2049.

Liu X, Yeung AC, Lo CK, Cheng T (2014) The moderating effects of knowledge characteristics of firms on
the financial value of innovative technology products. Journal of Operations Management 32(3):79–87.
Lu J, Liu X, Wright M, Filatotchev I (2014) International experience and FDI location choices of chinese
firms: The moderating effects of home country government support and host country institutions.
Journal of International Business Studies 45(4):428–449.
Luo Y, Tung RL (2007) International expansion of emerging market enterprises: A springboard perspective.
Journal of International Business Studies 38(4):481–498.
March JG (1991) Exploration and exploitation in organizational learning. Organization science 2(1):71–87.
Massimino B, Gray JV, Boyer KK (2017) The effects of agglomeration and national property rights on digital
confidentiality performance. Production and Operations Management 26(1):162–179.
McCann BT, Bahl M (2017) The influence of competition from informal firms on new product development.
Strategic Management Journal 38(7):1518–1535.
Medvedev D, Piatkowski MM, Yusuf S (2020) Will China become a global innova-
tion champion? keeping the global innovation system open will be key. Techni-
cal report, The World Bank, URL https://blogs.worldbank.org/eastasiapacific/
will-china-become-global-innovation-champion-keeping-global-innovation-system-open.
Moses OD (1992) Organizational slack and risk-taking behaviour: tests of product pricing strategy. Journal
of Organizational Change Management .
MOST (2010) Further promoting national innovative cities in China (in Chinese). URL http://www.gov.
cn/gzdt/2010-04/17/content_1584432.htm.
MOST and NDRC (2016) MOST & NDRC: Guidance on constructing national inno-
vative cities in China (in Chinese). URL http://www.most.gov.cn/mostinfo/
xinxifenlei/fgzc/gfxwj/gfxwj2016/201612/t20161213_129574.html, downloadable PDF at
https://kjt.hebei.gov.cn/web/resource/cms/2017/02/2017021516562492202.pdf.
Mostafa R, Klepper S (2018) Industrial development through tacit knowledge seeding: Evidence from the
bangladesh garment industry. Management Science 64(2):613–632.
Mukherjee D, Gaur AS, Datta A (2013) Creating value through offshore outsourcing: An integrative frame-
work. Journal of International Management 19(4):377–389.
NDRC (2010) Implementing national innovative cities in China (in Chinese). URL http://www.gov.cn/
zwgk/2010-01/11/content_1507703.htm.
Nieto MJ, Rodrı́guez A (2011) Offshoring of r&d: Looking abroad to improve innovation performance. Journal
of International Business Studies 42(3):345–361.
Nohria N, Gulati R (1996) Is slack good or bad for innovation? Academy of management Journal 39(5):1245–
1264.
Oliva R (2019) Intervention as a research strategy. Journal of Operations Management 65(7):710–724.
O’Reilly CAI, Tushman ML (2013) Organizational ambidexterity: Past, present, and future. Academy of
management Perspectives 27(4):324–338.
Özçelik E, Taymaz E (2004) Does innovativeness matter for international competitiveness in developing
countries?: The case of turkish manufacturing industries. Research policy 33(3):409–424.
O’Reilly CAI, Tushman ML (2008) Ambidexterity as a dynamic capability: Resolving the innovator’s
dilemma. Research in organizational behavior 28:185–206.
Park H, Bellamy MA, Basole RC (2018) Structural anatomy and evolution of supply chain alliance networks:
a multi-method approach. Journal of Operations Management 63:79–96.
Patanakul P, Pinto JK (2014) Examining the roles of government policy on innovation. The Journal of High
Technology Management Research 25(2):97–107.
Patel PC, Terjesen S, Li D (2012) Enhancing effects of manufacturing flexibility through operational absorp-
tive capacity and operational ambidexterity. Journal of Operations Management 30(3):201–220.

Paul J, Benito GR (2018) A review of research on outward foreign direct investment from emerging countries,
including china: what do we know, how do we know and where should we be heading? Asia Pacific
Business Review 24(1):90–115.
Peng DX, Heim GR, Mallick DN (2014) Collaborative product development: The effect of project complexity
on the use of information technology tools and new product development practices. Production and
Operations Management 23(8):1421–1438.
Pereira D, Leitão J (2016) Absorptive capacity, coopetition and generation of product innovation: contrasting
italian and portuguese manufacturing firms. International Journal of Technology Management 71(1-
2):10–37.
Petricevic O, Teece DJ (2019) The structural reshaping of globalization: Implications for strategic sectors,
profiting from innovation, and the multinational enterprise. Journal of International Business Studies
50(9):1487–1512.
Porter ME (1990) The competitive advantage of nations. Harvard business review 68(2):73–93.
Porter ME, Van der Linde C (1995) Toward a new conception of the environment-competitiveness relation-
ship. Journal of economic perspectives 9(4):97–118.
Preston DS, Chen DQ, Swink M, Meade L (2017) Generating supplier benefits through buyer-enabled knowl-
edge enrichment: a social capital perspective. Decision Sciences 48(2):248–287.
Rodrı́guez A, Nieto MJ (2016) Does r&d offshoring lead to sme growth? d ifferent governance modes and
the mediating role of innovation. Strategic management journal 37(8):1734–1753.
Rosenbaum PR, Rubin DB (1983) The central role of the propensity score in observational studies for causal
effects. Biometrika 70(1):41–55.
Rosner MM (1968) Economic determinants of organizational innovation. Administrative Science Quarterly
12(4):614–625.
Rugman AM, Li J (2007) Will china’s multinationals succeed globally or regionally? European management
journal 25(5):333–343.
Sartor MA, Beamish PW (2014) Offshoring innovation to emerging markets: Organizational control and
informal institutional distance. Journal of International Business Studies 45(9):1072–1095.
Schilling MA, Hill CW (1998) Managing the new product development process: strategic imperatives.
Academy of Management Perspectives 12(3):67–81.
Schilling MA, Shankar R (2019) Strategic management of technological innovation (McGraw-Hill Education).
Schotter A, Teagarden M (2014) Protecting intellectual property in china. MIT Sloan Management Review
55(4):41.
Scotchmer S (1991) Standing on the shoulders of giants: cumulative research and the patent law. Journal of
economic perspectives 5(1):29–41.
Scott A, Balthrop A, Miller JW (2020) Unintended responses to it-enabled monitoring: The case of the
electronic logging device mandate. Journal of Operations Management 1–30.
Shenzhen Government (2009) Implementation plan of constructing national innovative city in Shenzhen (in
Chinese). URL http://www.sz.gov.cn/zwgk/zfxxgk/zfwj/szfwj/content/post_6577236.html.
Steensma HK, Corley KG (2001) Organizational context as a moderator of theories on firm boundaries for
technology sourcing. Academy of management journal 44(2):271–291.
Tan J, Peng MW (2003) Organizational slack and firm performance during economic transitions: Two studies
from an emerging economy. Strategic management journal 24(13):1249–1263.
Tödtling F, Lehner P, Kaufmann A (2009) Do different types of innovation rely on specific kinds of knowledge
interactions? Technovation 29(1):59–71.
Torregrosa-Hetland S, Pelkonen A, Oksanen J, Kander A (2019) The prevalence of publicly stimulated
innovations–a comparison of finland and sweden, 1970–2013. Research policy 48(6):1373–1384.

US Patent and Trademark Office (2021) U.S. patent statistics chart, calendar
years 1963 - 2019. Published in March 2021, accessed on March 21, 2021.
https://www.uspto.gov/web/offices/ac/ido/oeip/taf/us stat.htm.
Verhoogen E (2020) Firm-level upgrading in developing countries. CDEP-CGEG Working Paper .
Veugelers R (1997) Internal r & d expenditures and external technology sourcing. Research policy 26(3):303–
315.
Vinding AL (2006) Absorptive capacity and innovative performance: A human capital approach. Economics
of innovation and New Technology 15(4-5):507–517.
Voss GB, Sirdeshmukh D, Voss ZG (2008) The effects of slack resources and environmental threat on product
exploration and exploitation. Academy of Management journal 51(1):147–164.
West J, Bogers M (2014) Leveraging external sources of innovation: a review of research on open innovation.
Journal of product innovation management 31(4):814–831.
Wiengarten F, Fan D, Lo CK, Pagell M (2017) The differing impacts of operational and financial slack on
occupational safety in varying market conditions. Journal of operations management 52:30–45.
Wooldridge JM (2019) Introductory econometrics: A modern approach (Cengage learning), 7 edition.
Yeung AC, Lai Kh, Yee RW (2007) Organizational learning, innovativeness, and organizational performance:
a qualitative investigation. International journal of production research 45(11):2459–2477.
Yiu LD, Lam HK, Yeung AC, Cheng T (2020) Enhancing the financial returns of r&d investments through
operations management. Production and Operations Management .
Zahra SA, George G (2002) Absorptive capacity: A review, reconceptualization, and extension. Academy of
management review 27(2):185–203.
Zanello G, Fu X, Mohnen P, Ventresca M (2016) The creation and diffusion of innovation in developing
countries: a systematic literature review. Journal of Economic Surveys 30(5):884–912.
Zhang Y, Li H, Hitt MA, Cui G (2007) R&d intensity and international joint venture performance in an
emerging market: Moderating effects of market focus and ownership structure. Journal of International
Business Studies 38(6):944–960.
Zhao M (2006) Conducting r&d in countries with weak intellectual property rights protection. Management
science 52(8):1185–1199.

Appendix A: Innovative Cities in China by 2017
Table A1 Innovative Cities in China by 2017
Index Province City Policy Year Index Province City Policy Year
1 Guangdong Shenzhen 2009 32 Shaanxi Xi’an 2010
2 Anhui Hefei 2010 33 Shandong Jinan 2010
3 Beijing Beijing 2010 34 Shandong Qingdao 2010
4 Chongqing Chongqing 2010 35 Shandong Yantai 2010
5 Fujian Fuzhou 2010 36 Shanghai Shanghai 2010
6 Fujian Xiamen 2010 37 Shanxi Taiyuan 2010
7 Gansu Lanzhou 2010 38 Sichuan Chengdu 2010
8 Guangdong Guangzhou 2010 39 Tianjin Tianjin 2010
9 Guangxi Nanning 2010 40 Xinjiang Uygur Changji Hui 2010
10 Guizhou Guiyang 2010 41 Xinjiang Uygur Shihezi 2010
11 Hainan Haikou 2010 42 Yunnan Kunming 2010
12 Hebei Shijiazhuang 2010 43 Zhejiang Hangzhou 2010
13 Hebei Tangshan 2010 44 Zhejiang Jiaxing 2010
14 Heilongjiang Harbin 2010 45 Zhejiang Ningbo 2010
15 Henan Luoyang 2010 46 Hebei Qinhuangdao 2011
16 Henan Zhengzhou 2010 47 Jiangsu Lianyungang 2011
17 Hubei Wuhan 2010 48 Jiangsu Zhenjiang 2011
18 Hunan Changsha 2010 49 Nei Mongol Hohhot 2011
19 Jiangsu Changzhou 2010 50 Jiangsu Nantong 2012
20 Jiangsu Nanjing 2010 51 Xinjiang Uygur Ürümqi 2012
21 Jiangsu Suzhou 2010 52 Guizhou Zunyi 2013
22 Jiangsu Wuxi 2010 53 Henan Nanyang 2013
23 Jiangxi Jingdezhen 2010 54 Hubei Xiangfan 2013
24 Jiangxi Nanchang 2010 (renamed to Xiangyang after 2010)
25 Jilin Changchun 2010 55 Hubei Yichang 2013
26 Liaoning Dalian 2010 56 Jiangsu Taizhou 2013
27 Liaoning Shenyang 2010 57 Jiangsu Yancheng 2013
28 Nei Mongol Baotou 2010 58 Jiangsu Yangzhou 2013
29 Ningxia Hui Yinchuan 2010 59 Jiangxi Pingxiang 2013
30 Qinghai Xining 2010 60 Shandong Jining 2013
31 Shaanxi Baoji 2010 61 Zhejiang Huzhou 2013

Chen Dan Liu 2021

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chen Dan Liu 2021

Uploaded by

Copyright:

Available Formats

Government Support and Cross-Border Innovation: A

Xiaojin (Jim) Liu

“National prosperity is created, not inherited.”

— Porter (1990, p.73)

Electronic copy available at: https://ssrn.com/abstract=3929640

of firms to seek global expansion and worldwide recognition.

Cross-border innovation is particularly important to firms in emerging markets. Emerging-market

of underprivileged stakeholders, and innovate the production to reduce negative environmental

ations more than ever.

Electronic copy available at: https://ssrn.com/abstract=3929640

(Torregrosa-Hetland et al. 2019)).

Electronic copy available at: https://ssrn.com/abstract=3929640

Electronic copy available at: https://ssrn.com/abstract=3929640

2. Theoretical Background and Hypotheses

2.1. Cross-Border Innovation and Government Support

Electronic copy available at: https://ssrn.com/abstract=3929640

rewarding as it provides “ownership advantages” (Dunning 1980) through proprietary information

Electronic copy available at: https://ssrn.com/abstract=3929640

firm performance” (Tan and Peng 2003, p.1249).

Electronic copy available at: https://ssrn.com/abstract=3929640

2.2. Role of R&D Capacity in Cross-Border Innovation

Electronic copy available at: https://ssrn.com/abstract=3929640

2018, Patel et al. 2012, Preston et al. 2017).

Electronic copy available at: https://ssrn.com/abstract=3929640

2.3. Shift in Focus of Cross-Border Innovation under Government Support

receiving extra resources from government.

Electronic copy available at: https://ssrn.com/abstract=3929640

government support can increase firm’s exploratory innovation overseas.

Electronic copy available at: https://ssrn.com/abstract=3929640

2020, p.356). Therefore, we have the following hypotheses.

of exploitative innovation with government support.

tion of exploitative innovation with government support.

Electronic copy available at: https://ssrn.com/abstract=3929640

(10) create an innovation-oriented ecosystem. In general, firms headquartered in an innovative

competitiveness in both domestic and international markets.

3.2. Data and Variables

To investigate the effect of government support on firms’ cross-border innovation, we developed

patents from USPTO” (Berry 2014, p.875).

Electronic copy available at: https://ssrn.com/abstract=3929640

Electronic copy available at: https://ssrn.com/abstract=3929640

strategic focus of a firm’s innovation for new products and processes.

Flammer and Kacperczyk (2016).

Electronic copy available at: https://ssrn.com/abstract=3929640

Electronic copy available at: https://ssrn.com/abstract=3929640

patents for a focal firm within one year.

2019, Lanjouw and Schankerman 2001).

that the firm primarily innovates in.

Electronic copy available at: https://ssrn.com/abstract=3929640

3.3. Empirical Model

3.3.1. Difference-in-differences. To examine whether government support fosters cross-

Cross.Border.Innovationict = αi + αt + β1 · Gov Supportct + γ 0 X ict + εict (1)

dependent variable of interest is Cross.Border.Innovation, which is the number of cross-border

on cross-border innovation. Hypothesis 1 predicts that β1 should be positive and significant.

regression. That is,

Cross.Border.Innovationict = αi + αt + β2 · Gov Supportct × R&D Capacityict

Electronic copy available at: https://ssrn.com/abstract=3929640

% Expltict = αi + αt + β3 · Gov Supportct + γ 0 X ict + εict (3)

initially-exploring group, β3 should be positive and significant.

Electronic copy available at: https://ssrn.com/abstract=3929640

find no such evidence of firms affecting the policy enactment.

pre-existing positive “effect” of government support on cross-border innovation (see Table 6 in

Electronic copy available at: https://ssrn.com/abstract=3929640

Section 4.3.4 indicate that our results are robust, too.