Abstract: China’s industrial support policy is one of the important means to promote corporate innovation, and its uncertainty will have a great impact on the innovation decision of micro enterprises. Using the data of Chinese A-share listed companies from 2008 to 2017, this paper examines the impact of industrial policy uncertainty on corporate innovation quality and the moderating effect of corporate financial flexibility. The results show that industrial policy change uncertainty facilitates corporate innovation quality, while industrial policy implementation uncertainty inhibits corporate innovation quality. In the process, corporate financial flexibility has a positive moderating effect, and compared with debt flexibility, cash flexibility plays a leading moderating role. The influence mechanism analysis shows that, the perception of policy uncertainty and financing constraint is the core conduction mechanisms of industrial policy uncertainty affecting corporate innovation quality. Further analysis shows that, the incentive effect of industrial policy change uncertainty on high-quality innovation outcomes is stronger than that of low-quality and medium-quality innovation, while the disincentive effect of industrial policy implementation uncertainty on high-quality innovation outcomes is weaker. This paper could provide new empirical evidence for in-depth understanding of the negative externality of policy uncertainty on firms’ innovation decision-making, and also provide decision-making reference for firms to deal with the impact of policy uncertainty and the government to optimize the formulation and implementation of industrial policies.

Key words: industrial policy uncertainty, policy change uncertainty, policy implementation uncertainty, corporate innovation quality, corporate financial flexibility