The Impact of Integrity Culture on Technology Innovation in Chinese Listed Companies: Evidence From Machine Learning

ABSTRACT Utilising the annual report of listed companies in China from 2007 to 2020, we construct an indicator of ‘integrity culture’ using a machine learning technique—the word embedding model—and test the effect of integrity culture on company innovation. Our results indicate that integrity culture can improve the quantity and quality of innovation. Mechanism analysis suggests that corporate integrity culture pushes innovation by improving finance and incentives for innovation; that is, overcoming financial constraints, decreasing business uncertainty, assuming more employee responsibilities and suppressing managers' myopia. Further investigation indicates that the impact of integrity culture on innovation is more obvious in non‐state‐owned enterprises (non‐SOEs), firms with an entrenched chairman and when firms face relatively stable times. Our paper empirically tests the role of integrity culture in promoting enterprise innovation, which has important implications for companies, practitioners and policymakers.