US sanctions and corporate innovation: Evidence from Chinese listed firms

Competition in the domains of science and technology has emerged as a central aspect of the rivalry between China and the United States. In response to national security concerns and foreign policy objectives, the U.S. government has placed numerous Chinese high-tech companies on its entity list to impede their development. This paper utilizes the imposition of U.S. entity list sanctions as an exogenous shock to investigate the impact of these sanctions on innovation within Chinese firms. Our findings indicate that U.S. sanctions stimulate both innovation inputs and outputs among Chinese companies. Following their inclusion on the U.S. sanctions list, these firms experience an increase in government subsidies and are perceived as possessing enhanced investment value. Moreover, the influence of U.S. sanctions on innovation is particularly pronounced when companies encounter intense competition in product markets and have access to substantial internal talent reserves.