Cross-Ownership System and Innovation Efficiency from a Corporate Sustainability Perspective

In this study, the effects of horizontal and vertical cross-ownership on innovation are examined, along with the influence of controlling parties on innovation incentives in cross-ownership firms. Since state-owned enterprises (SOEs) have better resources, the focus question of the study is to understand if SOE-controlled cross-ownership firms have stronger innovation incentives and possess higher efficiency. By using regression methods to analyze the firms listed in Chinese market, the results show that horizontal cross-ownership increases innovation incentives, but vertical cross-ownership decreases them. When firms with cross-ownership are controlled by non-SOE institutions, investments in innovation decrease. However, the environmental protection score of such a firm is higher. Lower investment and greater environmental protection indicate greater efficiency, and cross-ownership provides greater synergy in terms of sustainability. When the firms are SOEs, there is no such effect, indicating a less efficient synergy. However, SOEs attract more research visits from financial institutions. This study provides significant value for understanding the cross-ownership business system in the Chinese market. It demonstrates that the controlling party of cross-ownership can impact the efficiency of joint research and innovation, which is crucial for transitioning from a push-based, digitalization-focused Industry and Society 4.0 to a more pull-based, human-centered Industry and Society 5.0 era. The results show that policymakers should consider initiating policy revisions to further support business sustainability and change SOEs’ leading business norms to support innovation.