Smart City Fostering Innovation: evidence from China's Listed Enterprises

This paper primarily explores the impact and mechanisms of smart city policies on innovation output in China’s listed enterprises. Using a sample of A-share listed companies in 246 cities from 2004 to 2019, we employ the Staggered Difference-in-Differences (DID) method to analyse the influence of smart city policies on corporate innovation. Simultaneously, we also analyse the impact mechanisms of smart city policies on corporate innovation activities from the perspectives of industry competition, agglomeration of smart city development-related industries, internet development, and enterprise digital transformation. The study reveals that smart city policies effectively promote innovation output in China’s listed companies. From the perspective of industrial development, smart city policies have substantially stimulated cities’ lower competitive enterprises to innovate, and promoted innovations through agglomeration of industries which are closely related to smart city development. From the perspective of technological development, smart city policies enhance the innovation capabilities of enterprises through the application of the Internet and information technology. Through digital transformation, enterprises can optimise department structures, reduce costs, broaden marketing channels, and improve operational efficiency, leading to further innovations. The study also finds that smart city policies significantly promote innovation output in state-owned, large, and mature enterprises. However, the impact on innovation in non-state-owned, small and medium-sized enterprises is not pronounced and may even hinder innovation. Additionally, the influence of smart city policies on corporate innovation exhibits regional imbalances, with innovative effects being significant in economically advanced first-tier cities, as well as third, fourth and fifth-tier cities. The innovation effect in medium-developed second-tier cities is not significant. These findings indicate potential design flaws and implementation constraints in smart city policies, suggesting a failure to adequately consider the actual needs and challenges of small to medium-sized enterprises and medium-developed cities, leading to unequal resource distribution.