Econometric model: Industrial organization theory suggest that, the product market competition and enterprise innovation may be a bidirectional relationship, namely, the competition influences the innovation and instead the same. Dasgupta and Stilitz (1980) recommend that not only market competition affects the innovation, the innovation also affect the forming of market structures. For the purpose of avoiding possible errors, this study build simultaneous equations to examine whether there is endogenous between innovation and competition and also test the bidirectional relationship of product market competition and enterprise innovation by Hausman simultaneous test. Simultaneous equations are as follow:

R D HHI R D CONTROL YEAR INDUSTRY & = + + −+ λλ λ λ 01 2 & ( 1) ∑ ∑∑ + + + ε (1) HHI R D HHI CONTROL YEAR INDUSTRY = + + −+ ηη η η 01 2 & ( 1) ∑ ∑∑ + + + ε (2

R&D is enterprise technological innovation, HHI Herfindahi index and control a series control variables. Regression is made on the base of above equations (limited by this study, specific results are not listed). The regression results suggest that the coefficient of innovation and competition is not significant. Hauaman simultaneous test also reveal that there is no bidirectional relationship between product market competition and enterprise innovation among China’s listed companies.

 Existed researches indicate that monotonic or secondary linear relationships are possibly presence between product market competition and enterprise innovation. In order to completely investigate the influence, the following model is applied:

R D HHI HHI SIZE LEVERAGE GROWTH & SHARE OUTSIDE STATE MHS INDUSTRY YEAR αβ β β β β β β ββ ε =+ + + + + + + + ++ + + ∑ ∑ (3)

Sample selection and data sources: The object of the study is the listed companies of shanghai and Shenzhen during 2002-2010, experienced the following selection:

• Excluding the listed companies do not disclose R&D investment

• Excluding financial listed companies, for its financial criteria is different from other industries

• Excluding companies with missing data and data anomalies.

After selection, 1268 observations are left. R&D data is got from www.cninfo.com.cn, which is specified by China Securities Regulatory Commission to disclose information. The information includes the prepaid expenses, long-term prepaid expenses, accrued expenses, cash flow from operating activities and management fee. This study collects the data about R&D investment from the above disclosed information, the general styles are technology development costs, research and development expenses, R&D fee, R&D project costs, technology fee, research and development fee, development fee, new product development costs, science and technology research expense, new product testing and development expenses and research and investigation fee.

CONCLUSION

Since the proposal of Schumpeter’s innovation theory, the relation of innovation and competition always attract attention. The study is based on sample collected from shanghai and Shenzhen non financial listed companies during 2002-2010; HHI is used to measure product market competition and enterprise R&D investment is used to measure enterprise innovation; the aim is to analyze the influence of product market competition, to enterprise technological innovation. The results reveals: excessive competition would hurt the enthusiasm of companies and influencing the technological innovation, while excessive monopoly would make the companies generate a scene of complacency and reduce technological innovation. Therefore, the product market competition is reverse U-shaped related to technological innovation. In addition, enterprise characteristic variables and governance variables all affect the enterprise technological innovation. The scale of enterprise negatively affects its innovation and small scale companies are in favor of innovation. The more chance the companies get to grow, the more innovative activities they carry out. The liabilities rates of companies have no effect on innovation. The proportion of independent directors is positively related to technological innovation and independent directors begin to play a role on improving the innovation. The increasing of the ratio of executive shareholdings and option concentration will promote the technological innovation, while state-owned just the opposite.