Creditor litigation and corporate innovation: Evidence from China

Using data from 2007 to 2021 for Chinese listed companies, this study investigates the impact of creditor litigation on corporate innovation. It finds that companies involved in creditor litigation tend to reduce innovative patent applications. This finding persists across various tests and endogeneity analyses. Further investigation uncovers that this impact is particularly pronounced in firms with high-performance sensitivity, while it diminishes in firms with equity incentives. The mechanism analysis reveals the external pressures caused by creditor litigation, which leads to an escalation in a firm's operational expenses and compels a decrease in R&D investments, consequently constraining innovation.