Abstract
Using the implementation of the New Asset Management Regulation as a quasi-natural experiment, we examine the effect of strict financial regulation on corporate innovation. We find that the regulation significantly promotes corporate innovation, as evidenced by an increase in R&D investment. Mechanism analyses indicate that this effect operates through reduced financial investment and lower debt financing costs. Cross-sectional analyses further suggest that the effect is stronger among companies with higher levels of financial arbitrage, executives with R&D backgrounds, greater financial constraints, and higher product market competition. Overall, this study contributes to the literature on financial regulation and corporate innovation and helps clarify the policy effects of the New Asset Management Regulation. These findings also have important implications for strengthening financial regulation reforms to promote the high-quality development of the real economy.