Effects of financial misappropriation on regional innovation efficiency: new evidence from China

Purpose Financial misappropriation is a significant challenge to China’s innovation-driven growth model. This paper investigates the impact of regional-level financial misappropriation on innovation efficiency across 30 provinces and administrative municipalities in China. Design/methodology/approach The paper uses the Data Envelopment Analysis method to estimate the innovation efficiency at regional level, then, employs panel Tobit and indirect-transmission-channel models to analyze the direct and indirect impact of financial misappropriation on regional innovation efficiency in China. Findings The findings of the paper suggest that financial misappropriation significantly reduces regional innovation efficiency in China both directly and indirectly. Financial misappropriation hinders the transformation of scientific and technological achievements and, at the same time, it retards high-tech industrial development. Research limitations/implications The research adopted the non-parametric approach over the parametric approach due to limitations of data availability. Both approaches have their own criticisms. However, the focus in this generates the efficiency scores that could be used for the analysis principal question of this research. Practical implications The results show if the innovation efficiency issues are not addressed at regional levels the national efficiency objecting may achieve suboptimal results. Social implications The benefits of innovation may not flow on to regional economies creating social disparity. Originality/value This paper is the first of its nature empirically testing the direct and indirect effects of financial misappropriation on regional innovation efficiency in China by using regional financial corruption data of 30 Chinese provinces and administrative cities.