The impact of business environment optimization on firm's innovation efficiency

According to the report "Doing Business in China" issued by the World Bank, this paper constructs 30 key cities' index of business environment optimization in China. By merging it with Chinese industry survey data, this paper analyzes the effect and mechanism of business environment optimization on the firm's innovation efficiency. The empirical results show that business environment optimization significantly promotes a firm's innovation efficiency. The mediating effects between business environment optimization and firm innovation efficiency are that they lower the transaction cost at the firm level, promote market competition at the industry level, and improve the resources allocation efficiency at the city level. Moreover, mediating effects of resources allocation efficiency are higher than that of transaction cost and market competition. The heterogeneity analysis shows that the impact of business environment optimization is higher for non-state-owned enterprises than state-owned enterprises, higher for capital intensive and high technology industries than labor-intensive industries, and higher for coastal areas than inland areas. © 2022, Editorial Board of Journal of Systems Engineering Society of China. All right reserved.