Sustainability 2019 , 11, x doi: FOR PEER REVIEW www.mdpi.comjournal sustainability Article 1 [623011]

Sustainability 2019 , 11, x; doi: FOR PEER REVIEW www.mdpi.com/journal/ sustainability Article 1
Research on the Differentiated Impact Mechanism of 2
Parent Company Shareholding and Managerial 3
Ownership on Subsidiary Responsive Innovation: 4
Empirical Analysis Based on "Principal -Agent" 5
Framework 6
Peng Xu 1, Heng Zhang 1 and Guiyu Bai 2,* 7
1 School of Business Administration , Shandong University of Finance and Economics , Jinan 250014 , China ; 8
[anonimizat]; [anonimizat] 9
2 Business School , University of Jinan , Jinan 250002 , China 10
* Correspondence : [anonimizat] 11
Received: date ; Accepted: date ; Published: date 12
Abstract: Under the dynamic competition situation, the innovation competition interaction 13
between enterprises will take the form of mutual responding, while the formulation and 14
implementat ion of responsive innovation strategy will be influenced by both shareholders and 15
managers in the principal -agent relationship. Based on the difference of governance logic between 16
shareholders and managers when they are holding shares at the same time, we studied the 17
mechanism of subsidiary responsive innovation decision -making by means of regression analysis. 18
The results show that: First, the parent company shareholding has a negative impact on the 19
subsidiary responsive innovation. The lower the degree of separation between ownership and 20
control rights of the actual controllers, the stronger the negative impact of the parent company's 21
ownership on the subsidiary responsive innovation.Third, companies whose managers hold fewer 22
shares select the relatively ne gative strategy responsive innovation. Further research finds that 23
higher -quality external institutional environment will weaken the negative impact of parent 24
company shareholding on subsidiary responsive innovation and the positive impact of managerial 25
ownership on subsidiary responsive innovation. Relevant conclusions can provide some reference 26
value for the formulation of responsive innovation decision of listed companies, and provide new 27
insights for the design of parent -subsidiary corporate governance structure and the design of 28
managerial equity incentive mechanism in the context of corporate group governance. 29
Keywords: group company; responsive innovation; innovative decision -making; governance logic 30
31
1. Introduction 32
Enterprises obtain market position and economic benefits in competition. The consequence of 33
competition affects the future development of enterprises. In many fields involved in enterprise 34
competition, innovation has become the top priority of enterprise competition due to its 35
characterist ics of improving productivity and creating competitive advantages[ 1].Innovation 36
behavior and innovation competition have also attracted extensive attention of researchers [ 2,3]. 37
As the two subjects under the principal -agent framework, the major shareholder and the 38
manager have an important influence on the formulation and implementation of corporate strategic 39
decisions. Principal -agent theory holds that the principal and the agent have diffe rent objective 40
functions, and the agent will not always act in the best interests of the principal[ 4]. In other words, 41
there are some differences in the governance logic between the principal and the agent. Moreover, 42

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recent research s uggests that it is the difference in the governance logic of principal -agent subjects 43
that makes them have different attitudes towards innovation[ 5]. 44
Although the existing literature has made considerable progress in the study of the logical 45
differences of principal -agent governance and enterprise innovation behavior, there are still some 46
problems to be solved as follows: on the one hand, the interactive mechanism of innovation 47
competition among enterprises is still unclear. Most of th e existing studies are based on the 48
characteristics of enterprises themselves to analyze the regularity of corporate innovation 49
decision -making[ 3,6], while dynamic competition theory has noted that the competition among 50
enterprises presents in an interactive form, that is, the innovative competition actions implemented 51
by enterprises in the market will cause the response of competitors. In turn, these innovative 52
responses will affect the choice and imple mentation of further innovative competition actions of 53
pioneer enterprises [ 7]. Under the framework of dynamic competition, the choice and formulation 54
of enterprise innovation decision -making is not only limited to its own resources a nd conditions, 55
but also can be affected by the industry innovation competition situation to a lager extent. On the 56
other hand, the existing research on the governance logic differences between shareholder 57
ownership and managerial ownership is still not cle ar enough. The shares held by shareholders and 58
managers reflect the distribution ratio of the residual interests of the enterprise. Agency theory 59
holds that endowing managers with residual claim can promote consistent interests of shareholders 60
and managers [8]. According to this idea, the increase in the shareholding ratio of managers and 61
shareholders will make them share the same attitude in making innovative and competitive 62
decisions. However, the conclusion of the existing research is contradictory. Some studies have 63
shown that managerial ownership and shareholder ownership have opposite impacts on corporate 64
innovation [ 9,10]. 65
In view of the above problems, based on the governance factor o f parent company 66
shareholding and managerial ownership ratio, we take listed companies under the framework of 67
Chinese enterprise groups as samples, and investigate the governance logic differences of 68
principal -agent in the process of responsive innovation decision -making. Compared with previous 69
studies, the main contributions of this paper are as follows: Firstly, this paper puts corporate 70
innovation decision -making in the framework of dynamic competition, regarding corporate 71
innovation decision -making with the perspective of industry interaction, thereby eliciting and 72
analyzing corporate responsive innovation –the innovation responding decision -making made by 73
enterprises when facing the innovative competition from competitors.The research on the 74
mechanism o f corporate innovation decision -making is more in line with the reality of frequent 75
interactions between businesses. Secondly, this paper explores the difference of governance logic 76
between the principal and the agent when they hold shares at the same time , investigates the 77
changing rule of responsive innovation of listed companies when the shareholding level of the 78
principal and the agent changes, and develops the academic dialogue of the difference of 79
governance logic between the principal and the agent. Third, this paper puts the research on 80
responsive behavior under the special governance situation of enterprise groups, deepening the 81
understanding of the governance effect of enterprise groups. The relevant conclusions can provide 82
some reference value for the formulation of responsive innovation decision -making of listed 83
companies, which are also helpful for the design of parent -subsidiary corporate governance 84
structure and managerial incentive mechanism in the context of corporate group governance. 85
The re mainder of this paper is organized as follows. Section 2 explain s the theoretical 86
background and reviews the empirical literature then proposes the hypothesis on the basis of a 87
literature review . Section 3 demonstrates the research design and empirical mod el, introduces 88
sample selection, data collection, the definition and measurement of variables. Section 4 describes 89
the empirical results and discussion, and Section 5 is the summary of conclu sions, contribution to 90
theory, managerial implications, and sugge stions for future research. 91
2. Literature Review and Hypothesis Development 92

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2.1. Principal Governance Logic: Parent Company Shareholding and Subsidiary Responsive Innovation 93
Decision 94
In China's securities market, the controlling methods for listed companies can be divided into 95
two forms: legal person holding and natural person holding. Among them, the existence of legal 96
person holding result in the concept of "parent holding". Research ers have made more explorations 97
on the concept of parent company shareholding . For example, Lskavyan and Spatareanu[ 11] 98
pointed out that the concentration of parent company shareholding may alleviate the negative 99
effects from the wea k protection of host country laws for shareholders. Hsieh et al. [ 12] believe that 100
the difference in the shareholding ratio of the parent company would affect its management way 101
for subsidiaries. Relevant research fully illustrates that the parent company shareholding is a key 102
element in the corporate governance process, w hich has an tremendous influence on the strategic 103
decision -making of subsidiaries. 104
Innovation behavior is characterized by long investment cycle and output uncertainty [13]. 105
Responsive innovation is an innovative responding decision made by an enterprise facing attack 106
from a competitor that uses innovation as the competitive method. Moderate responsive innovation 107
can create technological advantages for the enterprise and bring about better external evaluation. 108
However, excessive respo nsive innovation may not only cause the possibility of falling into 109
financial crisis, but also cause greater uncertainty in shaping the competitive advantage of the 110
enterprise due to the increase of legal threats. 111
Prospect theory holds that when decision m akers judge and evaluate a certain scheme under 112
uncertain conditions, they usually set a reference point to judge gains and losses, and make 113
behavioral decisions [14]. The decision reference point is affected by the own subjective va lue of 114
decision maker. When the decision result is better than the reference point, it would be regarded as 115
gains, otherwise it would be regarded as losses. Decision makers tend to avoid risks when facing 116
gains and to chase risks when facing losses [15]. As the controlling shareholder of the subsidiary 117
company, the main motivation for the parent company to hold the equity of the subsidiary 118
company is to obtain the benefits brought by the subsidiary company in its long -term operation. 119
The increase of the shareholding level of parent companies means that the parent company is 120
optimistic about the prospect of the subsidiary company and believes that the subsidiary company 121
will bring benefits to itself in the future. At this time, the pare nt company is more inclined to regard 122
the operation of the subsidiary company from a perspective of gains, tending to avoid risks by 123
operating the subsidiary company conservatively, which will reduce responsive innovation.Based 124
on the above analysis, we su ggest the following hypothesis: 125
Hypothesis 1. Parent company shareholding has a negative impact on subsidiary responsive innovation. 126
Enterprise groups have special governance situations, the separation of ownership and control 127
rights caused by stratificati on within the group has a profound impact on the strategic behavior of 128
subsidiaries [ 16,17]. When the degree of separation between ownership and control rights of the 129
parent company is relatively low in the con text of the enterprise group, the risk level formed by the 130
responsive innovation of the subsidiary company will be increased, and the difficulty of risk transfer 131
will also be magnified. The uncertainty of risks will further stimulate the risk aversion tend ency of 132
the parent company and urge the parent company to implement more negative responsive 133
innovation. Specifically as follows: 134
On the one hand, enterprise groups with relatively high degree of separation between 135
ownership and control have stronger exter nal financing advantages [18]. The existence of resource 136
advantages not only makes enterprise groups more capable of providing financial guarantee for the 137
implementation of responsive innovation, but also diminishes the probability o f appearing financial 138
risks if subsidiary responsive innovation is not successful. On the other hand, a high degree of 139
separation of ownership and control results in the existence of a complex control chain between 140
the actual controller and the listed co mpany[ 19], which leads to the possibility for the parent 141
company to disperse risks along the control chain of the listed company. Under the same 142

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shareholding level, the higher the degree of separation between ownership and control within the 143
framework of the group, the greater the control right of the actual controller, and the more capable 144
the parent company is to carry out risk transfer. On the c ontrary, when the degree of separation 145
between ownership and control is relatively low within the framework of the group, it is difficult for 146
the parent company to disperse the risks brought by responsive innovation through the control 147
chain, which may weaken the enthusiasm of the parent company to implement reactive innovation 148
to some extent . Based on the above analysis, we propose the following hypothesis: 149
Hypothesis 2. The lower the degree of separation between ownership and control rights of the actual 150
controllers, the stronger the negative impact of parent company shareholding on subsidiary responsive 151
innovation. 152
2.2. Agent Governance Logic: Subsidiary Managerial Ownership and Responsive Innovation Decisions 153
Managerial ownership has always been regarded as an effective method to alleviate the first 154
kind of agency problem. Early studies generally believed that managerial ownership would 155
strengthen the consistency of interests between managers and shareholders. Therefore, in China ’s 156
listed companies, manag erial ownership has gradually become a common incentive method. 157
However, existing research identifies that managerial ownership may also bring about the 158
managerial entrenchment effect [ 20,21]. When the level o f subsidiary managerial ownership rises, 159
the shares managers hold will stimulate their managerial entrenchment mentality, thereby 160
enhancing managers' enthusiasm for corporate responsive innovation. Specifically as follows : 161
Managerial entrenchment hypothesi s argue that in order to protect their own interests, 162
managers will take defensive actions to maintain their positions and pursue the maximization of 163
their own utility[ 22,23]. The increase of the number of owne rship means the increase of the 164
economic benefits involved by the managers in the company. The economic cost that the managers 165
leave the existing position will rise accordingly. The increasing economic cost will urge the 166
managers to industriously seek mana gerial entrenchment measures. Managerial entrenchment 167
measures include internal entrenchment measures and external entrenchment measures [ 24]. In the 168
internal entrenchment measures, the main defense object of managers is the supervis ion from the 169
board of directors, which will choose whether to reduce the salary of the managers or dismiss some 170
managers judging by the evaluation of the managers. The evaluation of managers by the board of 171
directors of the company mainly focuses on the ex tent of efforts, ability and the influence of 172
external environment on managers' behavior [ 24]. Therefore, in order not to be punished by the 173
board of directors, the managers will try their best to ensure that the board of directors regard them 174
as hard -working people or people with high capacity. As the response of listed companies to 175
market competition, the implementation of responsive innovation behavior will highlight the 176
efforts of the managers in the face of market comp etition. Therefore, in order to obtain a higher 177
evaluation from the board of directors, the management will tend to promote more active 178
responsive innovation. 179
In addition, the increase of managerial ownership will also enable the managers to gain more 180
cont rol rights and enhance their discourse power in listed companies. The increasing discourse 181
power of the managers can be seen as a social signal, and the reception of this social signal will 182
enhance the self -confidence tendency of the managers [25]. Self -confident managers tend to 183
overestimate investment returns and underestimate investment risks, evaluating the current 184
situation optimistically [26], believing that they can create wealth for shareholders and impr ove 185
their reputation through investment. The self -confidence of managers makes them show a more 186
positive response attitude when facing the innovative competition methods of other competitors in 187
the market. At this time, managers will promote more responsiv e innovation behaviors.Based on 188
the above analysis, we propose the following hypothesis: 189
Hypothesis 3. Subsidiary managerial ownership has a positive impact on subsidiary responsive innovation. 190

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Leadership structure allocation refers to the listed company's selection of the position allocation 191
status of chairman and CEO, including two situations of concurrence and separation of two 192
positions. The choice of leadership allocation reflects the independence of the board of directors and 193
the autonomy of the execu tive [ 27], which is an important internal governance mechanism for 194
modern companies to coordinate the relationship between the board of directors and the executive. 195
Referring to existing research, the relatively centralized leadershi p structure of subsidiaries will 196
affect the relationship between managerial ownership and responsive innovation through the 197
following paths: 198
The leadership structure of separation between CEO and chairman of directors will increase the 199
restraint and superv ision of the board on the managers of listed companies. On the contrary, 200
leadership structure of CEO duality has a positive influence on reducing the internal communication 201
time of the enterprise and reducing the divergence between the board and the execut ive, which can 202
effectively diminish the conflicts between the board and the executive [ 28]. When the listed 203
companies are in the leadership structure situation of CEO duality, it is easier for the manager to 204
break through the defense of the board of directors, which is the "first line of defense" of internal 205
governance [ 29], and the approval and implementation of the management decisions of the listed 206
companies will be smoother. The smooth decision -making will e nable the managers obtain the social 207
signal that they forcefully dominate the listed companies in the daily operation activities, thus 208
stimulating the self -confidence of managers and eventually promoting the listed companies to carry 209
out higher -level respo nsive innovation.Based on the above analysis, we propose the following 210
hypothesis: 211
Hypothesis 4. The relatively centralized leadership structure of subsidiaries will strengthen the positive 212
impact of managerial ownership on responsive innovation. 213
The overall study model is shown in Figure 1. 214
215
216
Figure 1. Hypothesized model. 217
3. Res earch Design 218
3.1. Sample Selection and Data Collection 219
In this paper, 2007 is taken as the starting year for sample observation. On the one hand, the 220
measurement data of responsive innovation of listed companies are taken from the "research and 221
development costs" of listed companies. The "New Accounting Standa rds" implemented since 2007 222 The Degree of Separation between Ownership and Control Rights of the Actual Controllers

Leadership Concentration of Subsidiaries
Subsidiary Managerial Ownership Subsidiary Responsive Innovation Parent Company Shareholding
H2（-）
H1（-）
H3（+）
H4（+）

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require enterprises to disclose research and development information, laying a foundation for the 223
availability of key data. On the other hand, it is because Article33 of the 2007 revised Guidelines on 224
the content and format of c orporate information disclosure for publicly issued securities No.2 by 225
the CSRC requires that "companies should remind investors of future corporate development 226
opportunities and challenges, business plans and research and development plans for the new yea r 227
should be disclosed". Under this background, more and more listed companies have disclosed 228
research and development plans. In addition, considering the availability of data and the number of 229
samples requested for large sample studies, the observation per iod of samples is determined as 230
"2007 -2016" for a total of 10 years. 231
Based on existing classification of corporate group companies [30], this paper makes a 232
preliminary selection of all listed companies in China's Shanghai and Shenzhen stock markets, and 233
selects listed companies of corporate groups as initial samples. On this basis, financial industry 234
companies, listed companies under special treatment and delisted company are eliminated, and the 235
missing data are deleted. 236
The ba sic data reflecting the responsive innovation of listed companies in this study are 237
selected from the annual research and development expenses of enterprises disclosed in Wind 238
database, and the data of parent company shareholding, subsidiary company manage rial 239
ownership and control variables are all selected from CSMAR database (CSMAR database is an 240
economic and financial database developed from the needs of academic research). 241
3.2. Variable Definition and Measurement 242
3.2.1. Dependent Variable 243
Subsidiary r esponsive innovation (SRI). Dynamic competition theory emphasizes the 244
interaction between competitors in the same industry. As a concept formed based on dynamic 245
competition theory, the measurement of responsive innovation should reflect the responsive 246
tend ency of listed companies to the innovation competition situation in the industry. Based on this, 247
we design the following formula: 248
,1
1
,,n
jt
j
j t j tTI
SRI TIn−
==
249
In the formula, TIj,t represents the technological innovation investment of listed company j in a 250
certain industry in t year,
,1
1n
jt
jTI n−
= represents the average level of technological innovation 251
investment in the industry to which the company j belongs in t -1 yea r . The ratio of the two reflects 252
the responsive innovation behavior (i.e. SRIj,t) implemented by the listed company j in t year based 253
on the average level of technological innovation in the industry in t -1 year. The larger the value of 254
SRIj,t, the more po sitive the responsive innovation in the dynamic competition in that year. 255
3.2.2. Independent Variables 256
Parent company shareholding (PCS) is the proportion of the parent company shareholding in 257
the total equity of the listed company. 258
Subsidiary managerial o wnership (SMO) is measured by the ratio of managerial ownership of 259
listed companies to the total equity of listed companies. 260
3.2.3. Moderating Variable 261
The degree of separation between ownership and control right(SOC): In this paper, the 262
deviation degree between ownership and control of the actual controller is taken as one of the 263
moderator variables, which is measured by the difference between control right and ownership. 264
Specifically, control right is measured by the sum of the minimum shareholding ratio in each 265
control chain, and ownership is measured by the sum of the product of shareholding proportions of 266

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each link in each control chain.Subsidiary Leadership Structure (SLS). In this paper, the leadership 267
structure of a subsidiary is taken as the second moderator variable, and CEO duality is taken as the 268
measurement of this variable. 269
3.2.4. Control Variable 270
In addition, this paper also selects the factors that may affect the innovation behavior of listed 271
companies, such as the nature of the parent compan y shareholding (PCS), the independence of 272
subsidiary board of directors (ISB), the size of subsidiary board of directors (SSB), the asset -liability 273
ratio of the subsidiary (ALRS) and the size of the subsidiary (SS), as the control variables of this 274
study. The specific definitions and measurement methods of each variable are shown in Table1. 275
Table 1. Definition and measurement of variables. 276
Variables Code Index
Subsidiary Responsive
Innovation （SRI） SRI A calculation formula is designed
based on dynamic competition
theory.
Parent Company Shareholding PCS The proportion of parent company
shareholiding to total equity of listed
companies
Subsidiary Managerial
Ownership SMO The proportion of managerial
ownership in total equity of listed
companies
The degree of Separation
between Ownership and Control
Right SOC The difference between control right
and ownership of listed companies
Leadership structure of
subsidiaries SLS CEO duality is "1",otherwise "0".
Nature of the parent company
shareholding PC State -owned is "1" and
non-state -owned is "0".
Size of the subsidiary board of
directors SSB Number of the Board of Directors of
Listed Companies
Independence of subsidiary
board of directors ISB The proportion of independent
directors in the board of directors of
listed companies at the end of the
year
Asset -liability ratio of
subsidiaries ALRS The ratio of total liabilities to total
assets of listed companies at the end
of the year
Size of Subsidiaries SS The Logarithm of total assets of listed
companies at the end of the year
3.3. Models 277
In order to verify the research hypothesis proposed in this paper, the following multiple 278
regression models are designed: 279
280
Model 1:
1n
j
jSRI c b Control 
== + + 281
Model 2:
1n
j
jSRI c b Control aPCS 
== + + + 282

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Model 3:
12
1*n
j
jSRI c b Control a PCS a PCS SOC 
== + + + + 283
Model 4:
1n
j
jSRI c b Control aSMO 
== + + + 284
Model 5:
12
1*n
j
jSRI c b Control a SMO a SMO SLS 
== + + + + 285
Among them, Control is the control variable group, c is the intercept term, ε represents the 286
random disturbance term, j is the number for each control variable, bj represents the regression 287
coefficient of each control variable, and a represents the regression coefficient of each independent 288
variable. Model 1 is a r egression model of the control variables and the dependent variable. Model 2 289
adds an independent variable to Model 1 to test the correlation between parent company 290
shareholding and responsive innovation, that is, hypothesis H1. Based on model 2, model 3 ad ds an 291
interaction term to test the moderating effect of the degree of separation between ownership and 292
control, i.e. hypothesis H2. Model 4 adds another independent variable to model 1 to test the 293
correlation between managerial ownership and responsive inn ovation, i.e. hypothesis H3. Based on 294
model 4, model 5 adds another interaction term to test the moderating effect of leadership structure, 295
i.e. hypothesis H4. 296
4. Empirical Results 297
4.1. Descriptive Statistics 298
Table 2 shows the data characteristics of sever al main variables from 2007 to 2016. It can be 299
found that the average value of responsive innovation over the years is nearly twice the median, 300
which indicates that there is a big gap in the innovation responding of different enterprises. The 301
median of par ent company shareholding is apparently higher than the median of subsidiary 302
managerial ownership, which indicates that although the phenomenon of managerial ownership is 303
common in contemporary companies, the number of shares managers held is still far lowe r than 304
major shareholders. It could be believed that this absolute difference in quantity leads to the 305
difference in quality and the difference in governance logic between managers and major 306
shareholders. 307
From a vertical point of view, except the variable of parent company shareholding which 308
generally show a downward trend, the mean and median of other variables fluctuate in a certain 309
range, and there is no obvious upward and downward trend. The mean of responsive innovation 310
varies in different yea rs, and the change direction of the median of the variable is basically 311
consistent with the average value, which indicates that the innovation interaction strategy of most 312
enterprises in the same industry will be influenced by other enterprises, showing a feature of 313
changing in sync. 314
315

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Table 3. Descriptive statistics of variables. 316
Year Variabl
e N Mean Median SD Min Max
2007 SRI 82 1.812 0.805 2.833 0.010 15.500
PCS 82 0.404 0.395 0.141 0.140 0.760
SMO 82 0.004 0.000 0.022 0.000 0.180
SOC 82 1.442 1.000 1.004 1.000 8.280
SLS 82 0.085 0.000 0.281 0.000 1.000
2008 SRI 111 1.262 0.670 1.780 0.010 10.140
PCS 111 0.401 0.396 0.139 0.130 0.760
SMO 111 0.008 0.000 0.035 0.000 0.230
SOC 111 1.789 1.000 3.602 1.000 38.480
SLS 111 0.081 0.000 0.274 0.000 1.000
2009 SRI 106 1.508 0.728 2.180 0.000 11.620
PCS 106 0.397 0.393 0.131 0.120 0.790
SMO 106 0.010 0.000 0.036 0.000 0.250
SOC 106 1.459 1.073 0.743 1.000 6.010
SLS 106 0.085 0.000 0.280 0.000 1.000
2010 SRI 161 2.041 0.930 3.418 0.000 30.070
PCS 161 0.386 0.370 0.137 0.110 0.760
SMO 161 0.007 0.000 0.028 0.000 0.210
SOC 161 1.519 1.104 0.846 1.000 6.010
SLS 161 0.106 0.000 0.308 0.000 1.000
2011 SRI 270 1.586 0.804 3.048 0.000 32.800
PCS 270 0.379 0.361 0.145 0.070 0.850
SMO 270 0.006 0.000 0.027 0.000 0.240
SOC 270 1.484 1.108 0.768 1.000 6.230
SLS 270 0.122 0.000 0.328 0.000 1.000
2012 SRI 302 2.720 1.282 4.691 0.000 39.520
CEP 302 0.380 0.363 0.147 0.070 0.850
SMO 302 0.006 0.000 0.025 0.000 0.240
SOC 302 1.486 1.088 0.814 1.000 6.360
SLS 302 0.126 0.000 0.332 0.000 1.000
2013 SRI 381 1.806 0.875 2.820 0.000 19.330
PCS 381 0.373 0.361 0.148 0.000 0.820
SMO 381 0.005 0.000 0.022 0.000 0.230
SOC 381 1.488 1.071 0.801 1.000 6.530
SLS 381 0.121 0.000 0.326 0.000 1.000
2014 SRI 396 1.642 0.835 2.491 0.000 21.480

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4.2. Multiple Regression Analysis 317
Based on the model designed above, the article uses statistical software to carry out regression 318
analysis. The specific regression results are shown in Table 3. The regression results of model 1 319
show that there is a significant relationship between respons ive innovation behavior and control 320
variables, such as the nature of the parent company shareholding, the asset -liability ratio of 321
subsidiaries, and the size of subsidiaries, illustrating that the selection of control variables in this 322
paper is relatively appropriate. After controlling the relevant variables, model 2 adds the parent 323
company shareholding as an explanatory variable. The results show that there is a significant 324
correlation between the parent company shareholding and responsive innovation (p<0. 01), with a 325
regression coefficient of -0.054 and a goodness of fit of 0.148. The regression results of model 2 show 326
that the parent company shareholding has a negative impact on responsive innovation, the higher 327
the parent company shareholding, the lower t he subsidiary responsive innovation level, Hypothesis 328
1 is thus verified. 329
The regression results of model 3 point out that under the condition of controlling variables 330
such as the asset -liability ratio of subsidiaries and the size of subsidiaries, there is a significant 331
positive correlation (p<0.1) between responsive innovation and the interaction term, with a 332
coefficient of 0.038 and a goodness of fit of 0.147. This shows that, within the framework of the 333
corporate group, the lower the degree of separation between ownership and control, the stronger 334
the negative impact of the parent company shareholding on the subsidiary responsive innovation, 335
Hypothesis 2 is thus verified. 336
After controlling the relevant variables, model 4 adds subsidiary managerial ownersh ip as an 337
explanatory variable. The results show that there is a significant correlation between subsidiary 338
managerial ownership and responsive innovation (p<0.05), with a regression coefficient of 0.046 339
and a goodness of fit of 0.152. The regression result s of model 4 show that subsidiary managerial 340
ownership has a positive impact on responsive innovation. With the increase of subsidiary 341
managerial ownership, the level of subsidiary responsive innovation will also increase, Hypothesis 342
3 is thus verified. 343
The regression results of model 5 show that under the condition of controlling variables such 344
as subsidiary asset -liability ratio and subsidiary size, there is no significant correlation between the 345
interaction term and responsive innovation, Hypothesis 4 has not been verified. The hypotheses 346
proposed in this paper have been verif ied partially , See Table 4 for details. 347
348 PCS 396 0.371 0.355 0.147 0.070 0.820
SMO 396 0.005 0.000 0.021 0.000 0.230
SOC 396 1.493 1.052 0.917 1.000 9.360
SLS 396 0.134 0.000 0.341 0.000 1.000
2015 SRI 411 1.607 0.811 2.369 0.000 20.740
PCS 411 0.364 0.343 0.143 0.070 0.800
SMO 411 0.007 0.000 0.036 0.000 0.430
SOC 411 1.433 1.046 0.776 1.000 6.650
SLS 411 0.114 0.000 0.319 0.000 1.000
2016 SRI 424 1.521 0.817 2.256 0.000 21.060
PCS 424 0.356 0.341 0.140 0.070 0.780
SMO 424 0.009 0.000 0.041 0.000 0.430
SOC 424 1.426 1.044 0.746 1.000 6.730
SLS 424 0.120 0.000 0.326 0.000 1.000

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Table 3. Regression results. 349
Variable Responsive Innovation
M1 M2 M3 M4 M5
Constant Term -0.019
（-0.83） -0.025
（-1.06） -0.021
（-0.89） -0.024
（-1.04） -0.024
（-1.05）
Control Variable
PC 0.079*
（1.76） 0.087*
（1.92） 0.084*
（1.85） 0.090**
（1.98） 0.090**
（1.99）
SSB -0.028
（-1.31） -0.026
（-1.23） -0.025
（-1.19） -0.027
（-1.28） -0.027
（-1.28）
ISB 0.001
（0.03） -0.002
（-0.12） -0.002
（-0.11） 0.008
（0.39） 0.007
（0.37）
ALRS -0.115***
（-5.40） -0.118***
（-5.52） -0.118***
（-5.51） -0.110***
（-5.14） -0.110***
（-5.15）
SS 0.435***
（19.48） 0.442***
（18.99） 0.446***
（19.07） 0.439***
（19.57） 0.439***
（19.58）
Moderator Variable
SOC 0.071***
（3.57） 0.068***
（3.37） 0.081***
（3.74） 0.071***
（3.55） 0.071***
（3.55）
SLS 0.091
（1.54） 0.108*
（1.79） 0.110*
（1.83） 0.100*
（1.67） 0.099*
（1.65）
Independent Variable
PCS -0.054***
（-2.63） -0.051**
（-2.48）
SMO 0.046**
（2.37） 0.043**
（2.13）
Interactive Term
PCS*SOC 0.038*
（1.65）
SMO *SLS 0.042
（0.58）
R² 0.1481 0.1457 0.1467 0.1520 0.1521
F 59.31 49.90 44.70 52.98 47.12
N 2396 2350 2350 2374 2374
Note: ***, **, * represents p < 0.01, p < 0.05, p < 0.1 respectively. 350
351
352

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Table 4. Hypotheses and whether hypotheses are verified. 353
Hypotheses Whether Hypotheses are
Verified
Hypothesis 1 Parent company shareholding has a
negative impact on subsidiary responsive
innovation. YES
Hypothesis 2 The lower the degree of separation
between ownership and control rights of
the actual controllers, the stronger the
negative impact of parent company
shareholding on subsidiary responsive
innovation. YES
Hypothesis 3 Subsidiary managerial ownership has a
positive impact on subsidiary responsive
innovation. YES
Hypothesis 4 The relatively centralized leadership
structure of subsidiaries will strengthen
the positive impact of managerial
ownership on responsive innovation. NO
4.3. Further Analysis 354
The external institutional environment (IE) reflects the living conditions of enterprises, vitally 355
influencing the development of enterprises. The previous section mainly considered the moderating 356
effect of internal governance factors such as the separation of ownership and control and leadership 357
structure on listed companies' responsive innovation behavior, but the discussion about moderating 358
effect of the institutional en vironment factor may be limited. In order to make the research more 359
comprehensive, this paper further analyzes the effect of institutional environment, an external 360
factor, on responsive innovation behavior. It is hoped that through statistical analysis of the 361
relationship between responsive innovation behavior and institutional environment, the role of 362
institutional environment in responsive innovation decision -making of listed companies will be 363
investigated. 364
The measurement of the institutional environment refers to the evaluation of the overall 365
progress of the market -oriented reform in China's provinces in China Sub -province Market Index 366
Report (2016), which includes factors such as the relationship between the government and the 367
market, the development of non-state -owned economy, the developing level of product market, the 368
developing level of factor market, the development of market intermediary organizations and the 369
legal institutional environment, and can relatively reasonably reflect the institutional e nvironment 370
currently faced by China's listed companies. 371
On the basis of the previous content, this paper maintains the original explanatory variables 372
and control variables, and takes the institutional environment as a moderator variable to be 373
included in t he analysis. The specific operation is to add the interaction term between the parent 374
company shareholding and the institutional environment on the basis of model M2, and add the 375
interaction term between managerial ownership and institutional environment o n the basis of 376
model M4. 377
M6 in Table 5 shows that there is a significant positive correlation between the interaction term 378
and responsive innovation (p < 0.05), with a coefficient of 0.050 and a goodness of fit of the model 379
of 0.154. It means that the imp rovement of external institutional environment will weaken the 380
negative impact of parent company shareholding on subsidiary responsive innovation. The reason 381
may be that the improvement of external institutional environment reduces the legitimacy 382
challenge of innovation, augmenting the probability of success of responsive innovation behavior, 383
decreasing the risk of parent company, eventually inducing more responsive innovation behavior. 384

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M7 in Table 5 reports that there is a significant positive correlation between the interaction 385
term and responsive innovation (p < 0.01), with a coefficient of – 0.102 and a goodness of fit of 386
0.161. It shows that a high -level external institutional environment will weaken the positive impact 387
of managerial ownership on subs idiary responsive innovation. A possible reason is that as the 388
degree of asymmetry of external information decreases, responsive innovation behavior is more 389
difficult to be used as a managerial entrenchment method, and the enthusiasm of managers to 390
promote responsive innovation behavior also decreases. 391
Table 5 Further analysis
Variable Responsive Innovation
M6 M7
Constant Term -0.022
（-0.92） -0.004
（-0.16）
Control Variable
PC 0.106**
（2.31） 0.102**
（2.24）
SSB -0.024
（-1.13） -0.024
（-1.11）
ISB -0.003
（-0.15） 0.008
（0.42）
ALRS -0.100***
（-4.63） -0.095***
（-4.37）
SS 0.437***
（18.52） 0.434***
（19.20）
Moderator Variable
SOC 0.070***
（3.42） 0.070***
（3.48）
SLS 0.082
（1.36） 0.077
（1.29）
Institutional Environment （IE） 0.080***
（4.07） 0.059***
（2.92）
Independent Variable
PCS -0.041**
（-1.98）
SMO 0.121***
（3.60）
Interactive Term
PCS*IE 0.050**
（2.51）
SMO*IE -0.102***
（-3.16）
R² 0.154 0.161
F 42.20 44.91
N 2327 2349
Note: ***, **, * represents p < 0.01, p < 0.05, p < 0.1 respectively. The value of t is in parentheses. 392
5. Conclusions and Enlightenment 393
5.1. Research Conclusions 394
This paper deduces the decision logic of response innovation of listed companies in enterprise 395
groups through prospect theory and principal -agent theory, and makes a statistical analysis of the 396
relevant decision logic and effect by using the data of listed companies in enterprise groups in 397

Sustainability 2019 , 11, x FOR PEER REVIEW 14 of 16
China. The results show that: First, the parent company shareholding has a negative impact on the 398
subsidiary responsive innovation. Second, A lower degree of separation between ownership and 399
control enhances the functioning of parent company shareholding in reducing subsidiary 400
responsive innovation. Third, compani es whose managers hold fewer shares select the relatively 401
negative strategy responsive innovation. Further research finds that the improvement of external 402
institutional environment will weaken the negative effect of parent company shareholding and the 403
positive effect of managerial ownership. 404
It should be noted that the moderating effect of CEO duality on the relationship between 405
managerial ownership and responsive innovation has not been verified. A possible explanation is 406
that CEO duality makes the manager position in the company more deeply rooted, which makes it 407
difficult for the board of directors to carry out effective supervision. The managerial entrenchment 408
motivation is correspondingly weakened, and there is no necessary to highlight their own effort s by 409
actively responding to competitors' innovative competition. 410
5.2. Contribution to Theory 411
In recent years, researchers have continuously deepened their research on corporate 412
innovation, exploring various dimensions and classifications of innovation such as breakthrough 413
innovation and incremental innovation[ 31-33]. However, although the academic circle has 414
conducted many beneficial researches on corporate innovation, the question of "how does th e 415
innovation interaction mechanism among enterprises work?" still remains to be clear. Inspired by 416
the dynamic competition theory, which divides the corporate interaction into "attack action" and 417
"responsive action" [ 34], this articl e introduces and studies the responsive innovation behavior of 418
enterprises. The research conclusions not only further expand the research on the innovation 419
behavior of enterprises, but also deepen the understanding of the inter -company innovation 420
interacti on mechanism. 421
On the other hand, the discovery of this article is also helpful to the research of agency theory. 422
Although managerial ownership has become a widely accepted method to reduce agency costs [ 35], 423
existing research and pr actice also show that managerial ownership contributes to managerial 424
entrenchment ability[ 36]. This study finds that the increasing number of shares held by the parent 425
company and the managers have opposite effects. The above conclus ion shows that the difference 426
in governance logic between shareholders and managers is still obvious, and this logic difference 427
do not disappear due to the grant of more residual claims, and may even be enlarged. 428
In addition, the findings of this article c omplement the research on internal and external 429
governance synergy, and further elaborate the synergy mechanism of internal and external 430
governance factors on corporate innovation. Further research of the article finds that there is a 431
"inhibitor" effect in the external institutional environment, which not only weakens the negative 432
impact of parent company shareholding on subsidiary responsive innovation, but also weakens the 433
positive impact of managerial ownership on subsidiary responsive innovation. 434
5.3. M anagerial Implications 435
The research results of the article also generate policy implications: First, listed companies 436
should reasonably evaluate their own innovation competitiveness and the current innovation 437
competition situation in the industry, carefull y participating in innovation competition interaction. 438
In the process of participating in innovation interaction, listed companies should further promote 439
the construction of trust mechanism among shareholders and the protection mechanism for the 440
interests of small and medium -sized shareholders. On the basis of fully protecting the rights and 441
interests of small and medium -sized shareholders, the listed companies should improve the 442
willingness of small and medium -sized shareholders to share resources, so that small and 443
medium -sized shareholders can fully share risks and benefits. Secondly, the board of directors of 444
listed companies should appropriately revise the evaluation mechanism for managers, improving 445
the transparency of relevant behaviors of managers in the decision -making process, decreasing the 446

Sustainability 2019 , 11, x FOR PEER REVIEW 15 of 16
responsive innovation projects promoted by managers due to managerial entrenchment motivation, 447
curbing the waste of resources caused by entrenchment actions. 448
5.4. Suggestions for Future Research 449
We believe that future research can focus on the following aspects: (1) The interactive effect of 450
major shareholder ownership and managerial ownership on responsive innovation of listed 451
companies. The number of shares held by major shareholders not only changes the attit ude of 452
major shareholders towards innovation, but also changes the efficiency that major shareholders 453
supervise the company [ 5]. Stricter supervision may produce an impact on the relationship between 454
managerial ownership and responsiv e innovation decision -making in enterprises, which is worth 455
focusing on in future research. (2) The results of innovation interaction among enterprises. This 456
paper mainly focuses on the factors leading to innovation interaction among enterprises, and 457
discu sses the occurrence rules of responsive innovation among enterprises. However, the original 458
intention of enterprises to participate in innovation activities is to improve market position. The 459
result of innovation interaction is also one of the concerns of enterprises. Therefore, from our 460
respective, researchers can use financial indicators, market share and other data to measure the 461
market position of enterprises in the future and study the influence of innovation interaction 462
intensity on the market positio n of enterprises. 463
Author Contributions: Conceptualization, P.X. and G.Y.B .; Data curation, P.X.; Formal analysis, P.X. and H.Z.; 464
Funding acquisition, P.X.; Investigation, P.X. and G.Y.B. ; Methodology, H.Z.; Project administration, P.X.; 465
Supervision, G.Y.B.; Validation, P.X.; Visualization, P.X. and H.Z.; Writing –original draft, H.Z.; Writing –review 466
and editing, P.X. and G.Y.B. 467
Funding: The authors gratefully acknowledge the support from National Natural Science Foundation of China 468
(grant no. 71972117), National Natural Science Foundation of China (grant no. 71602099) , Natural Science 469
Foundation of Shandong Province (grant no. ZR2018QG003), and Natural Science Foundation of Shandong 470
Province (grant no. ZR2016GQ04 ). 471
Conflicts of Interest: The authors declare no conflict of interest. 472
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