Government Certification and Innovation in Strategic Core Technologies: A Systems Perspective on China’s Little Giant Program

Abstract

Breakthroughs in strategic core technologies depend on the coordinated functioning of policy institutions, capital markets, knowledge networks, and firm decision-making. This study examines whether government certification can mobilize these interdependent elements within an innovation ecosystem to promote key core technological innovation (KCTI). Using the staggered implementation of the Little Giant certification program and panel data on Chinese A-share listed firms from 2014 to 2023, we employ a staggered difference-in-differences design to estimate the effect of certification on KCTI. The results show that government certification significantly enhances firms’ KCTI. Further analyses show that certification reduces managerial myopia, promotes knowledge diversification, and improves firms’ access to patient capital, providing evidence consistent with the proposed mechanisms. The effect of certification varies across institutional environments and firm characteristics. Investor attention further strengthens its innovation effect by facilitating the reception and interpretation of certification signals. These findings highlight government certification as an institutional mechanism that connects government guidance, market responses, and firm-level innovation within the broader innovation ecosystem.