Does Real Estate Price Affect Corporate Innovation in China?

The relationship between Chinese real estate prices and enterprises’ innovation is surveyed in the research. Real estate can be divided into residential real estate and commercial one in China. An empirical analysis of the data of Chinese listed companies in 2007-2018 shows that: (1) real estate prices are negatively related to corporate innovation, and (2) investment crowding-out theory and financing constraint theory cannot explain the phenomenon, which is explained by mental accounting theory, instead. In addition, with the rise-up of real estate prices, corporate innovation decreases in a short term, but rises for compensation after 1-3 years, while returning to normal level in 5 years. Finally, it is found that enterprises are more sensitive to commercial real estate prices than the price of residential one. The main contributions of this paper lie in identification of the above two major theories not suitable for Chinese enterprises and suggestion of new explanations. Future research, therefore, should avoid using investment crowding-out theory and financing constraints theory when investigating relevant Chinese topics.