How Do Talents Policies And Population Policy Shape Corporate Innovation?

Scientific and technological innovation is the driving power for a country's economic development.The Chinese government has fully recognized the importance of technological innovation,and adopted a series of policies to encourage innovation,to enable China to achieve the goal of becoming an innovative country by 2020.However,the current academic research on the implementation effect of China's innovation incentive policies is still in its infancy.And the empirical research on the Talents Attraction Policy,which currently garners lots of attention from the international community,is even blank.What is the implementation effect of the Talents Attraction Policy of China,and whether it actually plays a role in promoting technological innovation?This is the first question I address in my research.We find that the first generation growing under the influence of China's One-Child policy has become the main force in the labor market.And prior research has shown that the only children caused by the One-Child policy are more risk-averse,more pessimistic,less trusting,and less team oriented than other individuals with siblings(Cameron,Erkal,Gangadharan and Meng,2013).As is known,innovation is a highfailure risk activity,and risk-taking,optimism,and teamwork are important characteristics when carrying on innovative programs.So,will the character traits caused by China's One-Child policy affect technological innovation?This is the second question I attempt to answer in this research.We study the impact of the Talents Attraction Policy and One-Child Policy of China on innovation,because human capital is critical in promoting innovation,and these two policies have significantly affected China's human resources:the former one increases the supply of high-skilled human capital,and the latter changes the characteristics of human capital.To address the first question,we adopt a differences-in-differences methodology to examine the effect of the Talents Attraction Policy on innovation since the Talents Attraction Policy are staggered across time and eventually adopted by all the provinces(except Tibet).We find that:1.Firms located in provinces adopting the Talents Attraction Policy invest more in innovations,and produce more patents with higher quality,relative to firms located in provinces without the policy.2.The increases in firm innovation driven by the Talents Attraction Policy that we document in our research are unlikely to be determined by omitted variable bias and reverse causality.3.The evidences show that two potential channels can explain how the enforcement of the Talent Attraction Policy drives the corporate innovation improvement.The first and the most directly possible channel is that the high-level talents introduced can create new and high-quality patents for the firms.The second channel is that more new inventors join the firms located in provinces adopting the Talents Attraction Policy,and the new hires and existing inventors become more innovative after the provinces where their companies located implement the policy.4.The local government's fund invested in each talents can improve the productivity of talents,and play a leading role to encourage firms invest more in the R&D activities,resulting in more new and high-quality patents.And the more financial support,the more innovations for each talent and the firm located in the province.5.A stronger treatment effect of the Talents Attraction Policy implementation in innovation-intensive industries than in other industries.And firms can achieve better innovation outputs through improving their innovation efficiency,more American patents and citations when the province they located adopt the Talents Attraction Policy.Besides,we also find that the effect of the Talent Attraction Policy on innovation gets stronger over time.To address the second question,we select the perspective of the firms' CEOs to explore the impact of the one-child CEO growing under the influence of the One-Child Policy on corporate innovation since CEOs are crucial in making and conduct innovation decisions.We find that:1.The One-Child Policy,which restricts one couple from giving birth to more than one child,intensify its enforcement in January 1980,causes a sharply increase in the only-child ratio among CEOs just born after the policy cutoff.We exploit this discontinuity for identification and find that only-child CEOs lead significant decreases in the total number of patents,the average citations per patent,and the number of patents per ten million RMB R&D expenditures in a firm.2.As an alternative identification approach,we use a difference-in-differences setting around the CEO turnover events.We compare treated firms,i.e.,those firms that experience their CEOs switching from non-single children to single children,with firms always led by non-single-child CEOs around the CEO turnovers.After constructing more comparable samples using propensity score matching,we find consistent evidence that compared with firms always managed by non-single-child CEOs,innovation outputs and efficiency all dramatically reduced in firms with CEOs changing to singlechild CEOs.3.The RDD and DiD estimations all confirm that hiring a single-child CEO leads to a significant decline in firm's U.S.patents and citations.Furthermore,we find that the trends in firm's innovations prior to the appointment decision do not determine the only-child CEO hiring decisions,suggesting that our results are not driven by the endogenous matching problem.Compared with the existing literature,the main innovations and contributions of my research are as follows:1.This paper is the first to systematically explore the impact of China's Talents Attraction Policy on corporate innovation.Previous studies mainly adopt text analysis methods to compare the differences in the contents of the local Talents Attraction Policies in different provinces or cities in China,or explore the historical evolution and current status of the policy.For the first time,this paper introduces the Talents Attraction Policy into the research of corporate finance.2.This is the first paper to combine the company's innovation activities with the One-Child Policy in China.In the research of corporate finance,there is only one paper,i.e.,Cao,Cumming and Wang(2015),examining the human capital constraints for within-family succession caused by the One-Child policy.Our paper focuses on the role of the One-Child Policy on corporate innovation activities.Our finding is helpful to understand the unintended negative impact of China's One-Child Policy on economic growth.3.This paper complements the "Does the CEO matter?" literature by focusing on the impact of CEOs' personality traits on firm innovation.4.This paper provides new measurement tools to capture the Chinese firms'innovation ability.We use the number of patent citations,which is rarely used in Chinese papers,to measure the innovation quality.In addition,we further describe the quality of firm innovation in two more measures,i.e.,the number of U.S.patents,and average citation counts per U.S.patent.5.This paper also contributes to the growing literature on finance and corporate innovation.By exploring the causal effects of two government policies related to human capital,i.e.,the China's Talents Attraction Policy and One-Child Policy,on firm innovation,our paper not only adds to this literatures,but also helps the Chinese government and people to understand the implementation effect of the Talents Attraction Policy and rethink profoundly on the negative impact of the One-Child Policy on Chinese economic growth.