Does institutional fragility affect innovation investment?

Purpose This study aims to investigate the impact of institutional fragility on the innovation investments of enterprises by analyzing the moderating effect of government subsidies and the integration of industry and finance. Design/methodology/approach Multiple regression analysis was used on 10,838 samples of 2,356 listed companies in China for the period 2007-2017, to empirically test the influence of institutional fragility on innovation investment. Moreover, Heckman's two-stage approach was used for the robustness of the regression results. Findings The results show that the relationship between institutional fragility and innovation investment is an inverted U-shaped; government subsidies negatively moderate the relationship between institutional fragility and innovation investment, while the integration of industry and finance positively moderates them. Further analysis shows that the relationship between institutional fragility and innovation investment is more significant for high-tech enterprises. Similarly, the relationship between institutional fragility and innovation output also presents an inverted U-shape, which mainly affects enterprises' breakthrough innovation output, but has no substantial impact on the incremental innovation output. Originality/value The conclusions provide new ideas for guiding the government's reform, promoting the integration of industry and finance and promoting enterprise innovation.