Management’s macroeconomic cognition, equity balance, and innovation quality: Chinese taking SRDI listed enterprises as examples

Purpose This paper aims to explore the mechanism through which senior management’s macroeconomic cognition (MMC) influences enterprise innovation quality, following a “cognition-behavior-outcome” pathway.Design/methodology/approach. Design Using Chinese listed companies designated as national-level specialized, refined, distinctive and innovative (SRDI) “little giants” from 2011 to 2022 as the research sample, this paper uses listed companies designated as national-level SRDI “little giants” from 2011 to 2022 as its research sample. Findings The findings reveal that MMC significantly influences corporate innovation quality. A one-standard-deviation increase in MMC leads to a 13.35% improvement in innovation quality. Compared to firms with lower equity checks and balances, firms with higher equity checks and balances exhibit a stronger influence of MMC on innovation quality. In terms of transmission mechanisms, MMC facilitates enhanced innovation willingness, alleviates financing constraints and thereby enhance corporate innovation quality; institutional investor ownership and management’s financial background significantly moderate the impact of MMC on corporate innovation quality. Originality/value This study contributes to the enrichment of related research on corporate innovation quality. To mitigate concerns regarding construct validity, this study adopts several approaches. It explicitly defines the MMC index as a textual proxy derived from management discussion and analysis (MD&A) disclosures, intended to capture managerial cognition of the macroeconomy. The methodology for dictionary construction and text processing is described in greater detail. Further controls are added for the length and readability of the MD&A text, and placebo dictionary tests are conducted. Regarding outcome validity, the core dependent variable is specified as patent knowledge width, a key facet of innovation quality. The analysis is supplemented with alternative indicators of innovation quality. Consequently, while the primary empirical evidence establishes a robust association, subsequent identification tests continue to corroborate the central findings.