Administrative Examination and Approval Reform, Rule of Law and Enterprises’ Innovation Performance

It has been widely accepted that institution will seriously affect the innovation behavior of enterprises. However, the relevant empirical evidence is not much. In this paper, the event that 326 prefecture level cities in China have set up administrative examination and approval centers since 1997 is employed, as a quasi-natural experiment, to investigate the impact of administrative examination and approval reform on the innovation performance of enterprises. Especially, we pay attention to the impact of the level of rule of law in the reform areas. The empirical results show that the level of regional rule of law has a significant positive impact on the enterprises' innovation performance, while the reform of the establishment of administrative approval center has a significant positive impact in high rule of law area after the 2008 Global Financial Crisis. And, this promotion effect would be continued for three years after the reform, and would have a more significant impact on non-invention patents than invention. In terms of mechanism, this promotion is mainly achieved by increasing R&D investment rather than improving R&D efficiency. This study shows that the rule of law, as an important mechanism to restrain government administrative power, plays a key role in the reform of administrative examination and approval to promote enterprise innovation. The improvement of return on R&D investment relative to return on physical capital investment is also an important condition for administrative approval reform to promote the R&D performance of enterprises.