Does provincial gambling culture affect corporate innovation? Evidence from China

Abstract

We examine the impact of provincial gambling culture on the local firms’ R&D expenditure. We find that local gambling culture, measured by the regional lottery sales revenue per capita, promotes local firms’ R&D expenditure. Further tests show that provincial gambling culture produces more innovation outcomes and results in high innovation quality in the long run. Our result is robust to endogeneity corrections using the instrumental variable and PSM-DiD approaches and controlling for firm fixed effects. The mechanism tests reveal that our main finding works through two channels to increase local firms’ risk-taking: hiring young CEOs and using more equity. In addition, we rule out the impact of neighbouring regional gambling culture on the local firms’ R&D investments by using geographic RDD analysis. Finally, our results are more pronounced for firms in provinces with high levels of social trustworthiness, more young ageing populations, and non-SOEs.