AI Adoption and Innovation Quality: Evidence from Chinese Manufacturing Companies

Abstract

Artificial intelligence (AI) is a general-purpose technology driving technological and industrial transformation. In this study, we construct an AI adoption indicator based on textual analyses of firms’ annual reports and measure innovation quality using the cumulative three-year forward citation counts—excluding self-citations—of invention patents at the firm-year level. Based on a sample of Chinese A-share manufacturing firms spanning 2011–2021, we found that AI adoption is positively associated with innovation quality. This conclusion remains robust across a range of endogeneity-mitigating specifications and robustness checks. Exploratory mechanism analyses suggest that this positive association is partly accounted for by three channels—R&D investment, human capital, and R&D efficiency—although these results should be interpreted as indicating an association rather than causal mechanisms. Heterogeneity analysis further showed that such association is concentrated in larger enterprises, and it is stronger for enterprises with lower financialization and those in asset-intensive industries. However, no significant difference was observed across firms with different ownership or regional locations. This study expands the literature on the innovation effects of AI and offers new insights into the factors influencing innovation quality in the AI era. It also has implications for business management and public policy with regard to leveraging AI to foster high-quality innovation capabilities, thereby providing a knowledge foundation for industrial upgrading and sustainable development.