This paper investigates the relationship between stock risk supervision mechanisms and corporate innovation decisions, using China’s non-delisting risk warning system as a case study. Specifically, it empirically examines how the implementation of “non-delisting” risk warnings in a particular city influences the R&D expenditures of local enterprises, providing insights into the underlying mechanisms and implications.
Drawing on risk tolerance theory, which explores the interplay between capital markets and innovation, this study analyzes the spillover effects of “non-delisting” risk warnings on R&D investments by firms within the same city. The sample comprises data from A-share listed companies on the China Stock Exchange from 2008 to 2021. The OLS regression method is employed as the primary analytical tool, supplemented by robustness checks using Tobit regression, firm and city fixed effects, dynamic panel regression, instrumental variable methods, and propensity score matching to address potential endogeneity concerns.
The results indicate that the introduction of “non-delisting” risk warnings in a city significantly reduces the R&D expenditures of other enterprises within the same region. Mechanism tests reveal that warnings triggered by illegal fund appropriation by controlling shareholders or related parties primarily exert a “deterrence effect” on local firms. In sub-samples with a higher propensity for similar violations, the negative externalities of these warnings on R&D investments are more pronounced. Conversely, warnings issued due to temporary performance declines primarily induce a “credit risk contagion effect” among local enterprises, with stronger negative impacts observed in sub-samples facing higher financing constraints. Heterogeneity tests further demonstrate that higher external audit quality, robust internal controls, greater local government intervention, and advanced urban financial development mitigate the negative externalities of “non-delisting” risk warnings on R&D expenditures. Additionally, intense industry competition and favorable bank-enterprise relationships help alleviate these adverse effects. An analysis of R&D innovation strategies reveals that firms respond to such warnings by reducing expensed R&D investments and non-inventive patent outputs to manage potential capital market pressures and financing constraints.
There is still insufficient direct evidence regarding the specific pathways and mechanisms of these “deterrent effects” and “credit risk contagion effects”. For instance, there is a lack of evidence regarding the psychological changes and direct decisions of enterprise management in the face of “non-delisting” risk warnings from peer enterprises, as well as whether there are significant changes in the risk assessment activities of banks and other creditors when facing other enterprises in the same city as those with “non-delisting” risk warnings. In the future, such direct evidence can be obtained through typical case studies or field research via channels such as in-depth interviews or questionnaire surveys.
The findings offer valuable insights for emerging market economies, particularly China, in designing effective stock risk supervision systems during the early stages of capital market development. They also provide guidance for companies in adapting their strategies and management practices to navigate the evolving regulatory environment.
This study contributes to the literature by exploring the spillover effects of stock risk warnings and the intricate relationship between capital markets and corporate innovation. It extends existing research by identifying distinct mechanisms—deterrence and credit risk contagion effects—through which risk warnings influence R&D investments, while also highlighting the moderating roles of governance, financial development, and industry dynamics.
