How Does the Entity List Sanction Affect Companies’ Innovation and Performance? Evidence from China

This article analyzes the impact of the U.S. Entity List sanction on companies’ innovation and performance, using a sample of Chinese listed companies from 2000 to 2024. We provide evidence that the Entity List sanctions exert a significant positive impact on the innovation output and quality, and the external technology adoption of invention patents of companies on the List, while reducing technological lock-in and cooperation intensity in joint patent applications. Heterogeneity analysis shows that large or high-capability companies are better able to mitigate sanction impacts through technological innovation. Mechanism analysis reveals that sanctions primarily affect companies’ innovation by increasing the managerial ownership ratio, proportion of researchers, and R&D investment. Additionally, sanctions exhibit spillover effects and adversely affect companies’ financial conditions.