The Impact Of Industrial Policy On The Quantity And Quality Of Firm Survival

How to earn long-term survival is the basic topic for all firms,survival firms must achieve their own high-quality development through innovation.As the survival of enterprises is related to the stability of the employment market and the promotion of economic growth,in order to promote enterprise growth and economic development,governments have launched many supporting policies,including Industrial policy.However,the phenomenon of firms’short life span and low-quality innovation is still widespread.Therefore,from the perspective of quantity and quality,this paper discusses the impact of industrial policies on firm survival,scientifically evaluates the implementation effect of industrial policies at the micro level,and provides theoretical basis and empirical evidence for exerting industrial policies to promote economic and social development.Based on the theory of behavioral industry organization,this paper incorporates the limited rationality of enterprises into the theoretical analysis framework of industrial policies affecting the quantity and quality of firm survival,and applies the data of China’s manufacturing firms from 1998 to 2007 and the data of A-share stock market listed manufacturing firms from 2011 to 2015.Empirical analysis is carried out by methods such as Propensity Matching Score analysis,Survival Analysis method,Multinomial logit model and Mediation Effect model.In general,before entering the WTO,when the degree of marketisation in China was low,industrial policies can directly promote firm survival and indirectly promoted firm survival by promoting firm innovation.After entering the WTO,with the deepening of China’s marketisation,industrial policies will not only directly reduce firm’s life span,but also reduce firm life span by reducing firm innovation.The specific research conclusions are as follows.(1)Both industrial policy and political connection can prolong firm’s expected life span.When firms receive both industrial policies and political assistance,their life span have not been further extended,indicating that the effect of political connections partially replaced the positive effect of industrial policies.The impact of industrial policies on firm survival is a U-shape and moderate industrial policies have the strongest effect on the number of enterprises.Industrial policies can influence firm survival through affecting firm’s TFP and Rent seeking.(2)After joining the WTO,with the deepening of China’s marketization,industrial policies increase firm’s hazard of exit,especially for state-owned firms,the Chinese authorities were targeting joint financial and political help more specifically on firms more likely to survive.(3)When analyzing the reasons why industrial policies reduce the quality of firm survival,we find that industrial policies bring resource to firm,however,due to information asymmetry between the government and enterprises and the short span as well as the form of industrial policies,firms will undertake lower quality innovation activities to gain subsidies or tax holiday,thus reducing substantive innovation ability which equals to the quality of their survival.(4)Industrial policy can attract investor attention,this effect can further induce managers to choose low quality innovation in the inefficient capital market,thus reduce the quality of firm survival.The reason that why industrial policies decrease the quality of firm survival are different among different firms.Compared with state-owned firms and firms with political links,it is investor attention effect that cause private-owned firms and firms without political links to choose low quality innovation,thus reduce the quality of survival.In strategic emerging industries,industrial policy can affect the quality of firm survival by attracting investor attention,but this doesn’t exist in traditional manufacturing industry.The contributions of this paper are as follows.(1)It reveals that the dynamic and heterogeneous impact of industrial policy on the survival of enterprises.Compared with present literature that only exmine the static effect of industrial policies on firm survival,based on the fact that China’s economic system has changed periodically,it incorporated environmental change into the research framework of the effect of industrial policies on firm survival to explain the dynamic effect.The findings can provide empirical evidence on how to promote state-owned and private enterprises survive and develop in the new era.(2)It explores the appropriate range a of industrial policies to extend the duration of firms.In this paper,subsidies and tax incentives are used to measure the strength of industrial policy support and to control the implicit support of tariff policy and political correlation,so as to avoid the biased estimation of policy implementation effect caused by the omission of key variables.This paper evaluates the heterogeneous influence of industrial policies with different intensities on the duration of enterprises to explore the"appropriate range",and provides empirical evidence for the government to adjust the support of industrial policies to better play the incentive role of industrial policies.(3)It reveals the mechanism of industrial policies failing to improve the quality of enterprises survival.With the theory of behavioural finance,it incorporates investor attention into the present research framework.The findings show that "investor attention effect" is the mechanism of how industrial policies affecting the quality of firm survival.These can enrich and expand the research on industrial policy and firm innovation as well as behavoural finance theory,provide empirical evidence for the government to further deepen the reform,better guide the industrial policy and securities market to jointly improve the substantive innovation ability of enterprises,thus increase the quality of firm survival.(4)It constructs the theoretical analysis framework of the impact of industrial policies on the quantity and quality of enterprise survival,systematically explaining the phenomenon that the current industrial policies are not effective in promoting the quantity and quality of enterprises’ survival,as well as providing a micro theoretical basis for formulating and evaluating industrial policies scientifically and effectively.