Firm-level perception of competition and innovation: Textual evidence from China

We explore the relationship between firm-level perception of competition and innovation using a sample of Chinese listed firms during the period of 2007-2020. We find that higher perceived competition increases corporate innovation inputs. The results remain robust after we control for endogeneity issues and conduct a battery of robustness checks. Further tests show that the relationship is more prominent for less competitive industries, state-owned enterprises, less financially constrained firms, and stronger property protection regions. We also find that competition perception is associated with higher innovation outputs. Overall, our results imply that firms' concern for competition stimulate firms' innovation.