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The influence of local government decision-making competition on enterprise innovation investment under information asymmetry and multiple risk appetite type

Shaoyu Wu ( Tianjin University , Tianjin, China)
Dong Wang ( Tianjin University , Tianjin, China)

Kybernetes

ISSN: 0368-492X

Article publication date: 2 May 2017

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Abstract

Purpose

This paper aims to analyze the impact of the degree of local government decision-making competition on the optimal investment amount, investment location and investment failure of innovative investment enterprise under multiple risk appetite type of innovative investment enterprise. This paper also points out three regulation paths that central government could use to avoid the influence of local government decision-making competition on the validity of enterprise innovation investment (EII).

Design/methodology/approach

Based on analysis frame of government competition about unitary government states, this paper builds duopoly decision model to analyze influence of local government decision-making competition on EII. Considering information asymmetry and multiple risk appetite type of decision-maker, this paper analyzes influence of local government decision-making competition on location selection, the optimal investment amount, identification of investment failure and exit mechanism of EII according to different relationship between reference points of local government decision-making competition and EII.

Finding

The optimal investment amount of EII has positive correlation with risk appetite type of decision-maker, local government decision-making competition. Identification of investment failure and exit are divided into three phases. The boundary conditions are directly related to risk appetite type and amount of local government subsidy. Regional factor endowment and degree of preferential policy are main factors attracting enterprise investment. Local governments should analyze the interests of EII. There are three paths to avoid vicious competition among local governments: unified planning, revising of audit index, increasing penalties for failure of policies.

Originality/value

With rapid development of China's new urbanization process, urban economy has become an important carrier of economic development. Attracting foreign direct investment is an important measure to promote urban economic growth, and EII is the most important one. However new urbanization would lead to local government decision-making competition and then influence EII. Through analyzing influence of local government decision-making competition on EII, theory guidance could be provided to decision makers of innovation investment.

Keywords

Acknowledgements

This study was supported by the From Peasant Farmers under the Age Security and the Agricultural Land: Interactive Mechanism, Effects and Policy Innovation of China (project numbers 71203157) and the national Natural Science Foundation of China: Research on the Evaluation and Compensation Mechanism of Harmony and Rational Public Cultural Service Facilities Projects (project numbers 71272148). The author thanks anonymous reviewers and editors for very helpful comments and suggestion of the manuscript.

Citation

Wu, S. and Wang, D. (2017), "The influence of local government decision-making competition on enterprise innovation investment under information asymmetry and multiple risk appetite type", Kybernetes, Vol. 46 No. 5, pp. 802-817. https://doi.org/10.1108/K-07-2016-0177

Publisher

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Emerald Publishing Limited

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