The Power of Knowledge: Basic Research and Corporate Innovation: Evidence From China

Strengthening the foundation of basic research is crucial for building a technologically advanced nation and enhancing the technological innovation capacity of enterprises. Using data from Chinese A-share listed companies from 2010 to 2019, this study investigates the impact of basic research on corporate innovation and explores the underlying mechanisms. We find an inverted U-shaped relationship between basic research and corporate innovation, with the optimal intensity of basic research being 14.74%. In 17 provinces in China, it has been found that basic research has a positive effect. The integration of basic and applied research is conducive to promoting innovation in enterprises, with an optimal balance between the two being crucial. The mechanism tests reveal that basic research influences enterprise innovation through signal transmission, agglomeration, and talent effects. Further analysis indicates that higher local government efficiency is associated with more effective promotion of enterprise innovation through basic research. Moreover, basic research plays an “incubation” role, significantly enhancing the innovation capacity of private and small-scale enterprises.