| Summary: | Manufacturing firm data and district financial quantity and quality indicators for 2005–2007 combined with heterogeneous firm characteristics were used with a threshold panel to study the effect of financial inefficiency on firm R&D and the financial boundaries of efficiency improvement. The results show that: (1) extensive financial quantity expansion cannot support high innovation efficiency R&D (Research and Development) activities in private enterprises, low- and medium-technology enterprises, and underdeveloped area enterprises, as it causes financial inefficiency problems and a shortage of R&D inputs; and (2) financial efficiency and financial competition have nonlinear effects on firm R&D. Financial inefficiency and either low or excessive financial competition result in a lack of highly efficient firm R&D. Only improvements in financial efficiency and moderate competition can significantly promote firm R&D. The results of this study reveal an important way to improve the influence of financial inefficiency on firm R&D by moving away from simply expanding financial quantity to promoting quality instead.
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