To Drink or to Innovate? The Impact of Alcohol Culture on Corporate Innovation

Abstract

This study examines the impact of alcohol culture on corporate innovation in China. Using a sample of Chinese listed firms, the analysis reveals that stronger alcohol culture significantly inhibits firm innovation, as measured by both patent quantity and quality. The results remain robust when innovation efficiency measures are applied. A battery of robustness checks including alternative variable definitions, model specifications and estimation methods such as the difference-in-difference (DID) and instrumental variable (IV) approaches further reinforce the baseline results. Additionally, heterogeneity tests show that the negative impact of alcohol culture is more amplified in regions with weaker legal environments, poorer corporate governance and firms led by less educated executives. Mechanism analysis indicates that alcohol culture suppresses innovation primarily by increasing earnings management and excessive entertainment expenditures which distort resource allocation and reduce transparency. Overall, the results highlight that although alcohol-based social interactions may foster social connections and facilitate networking, they can also impose hidden institutional and behavioral costs that can hinder firms' innovation and undermine their long-term competitiveness.