Creating high-quality innovations in China: The role of political ties and formal institutions

Firms in emerging economies, such as China, are increasingly prioritizing high-quality technological innovations to boost global competitiveness. While the role of executive political ties in enhancing firms' innovation performance is well-documented, their specific contribution to fostering high-quality technological innovations remains underexplored. This study investigates how political ties influence innovation quality in China and analyses how certain firm- and region-specific institutions shape their effectiveness. Drawing on a sample of Chinese manufacturing firms, the findings reveal that political ties enhance high-quality innovations by offering financial, technological, and market-specific advantages. However, their effect is significantly moderated by formal institutions such as business group affiliation, foreign ownership, and region-level intellectual property rights (IPR) enforcement, which diminish firms’ reliance on political ties. These findings contribute to a nuanced understanding of the interplay between informal networks and formal institutions in driving innovation quality in emerging economies.