*4.4. Top Managers' R&D Functional Experience Moderating Mechanism*

The top managers lead the company and have a significant impact on the company's financing decisions. As proposed above, the functional experience associated with R&D is closely related to the innovation decision of managers. R&D functional experience will provide the directors and top managers with expertise knowledge, increase team heterogeneity, and reduce shortsightedness, thus promoting the firm's innovation [69,75]. Therefore, we use the proxy whether the firm's chairman or general manager has an R&D background to signify its internal innovation profile. Top managers' functional background derives from the management resumes disclosed in the firm's annual report.

Similarly to the political connection level mechanism, in the examination of hypothesis 3, the samples are firstly encoded into two groups according to the functional background of the chairman or general manager. If a firm's chairman or general manager has a background in R&D in the past, it is classified as a sample with an R&D background and marked as "with". Otherwise, it is classified as a sample without an R&D background and marked as "without". Secondly, the causal steps approach regression is repeated for each

group, respectively. The results (Table 4) preliminarily show that overborrowing only has a mediating effect between state ownership and R&D expenditure in the group without R&D backgrounds. It suggests an R&D background helps mitigate the negative impact of SOEs' overborrowing on R&D investment intensity. This finding reinforces our contention that top managers' R&D functional experience plays an important governance role in reducing the innovation expenditure deficit in SOEs. However, the specific moderating path on which an R&D background acts needs to be further examined. Similarly, we further run the Chow test on the above causal regression. Step 1 and step 2 are re-regressed with an inclusion of the interaction of independent variable State and moderating variable Dummy\_rdback (Dummy\_rdback equals to one if a firm's chairman or general manager has a background in R&D; otherwise, it equals to zero). Step 3 is re-regressed with an inclusion of the interaction of mediating variable Overloan and moderating variable Dummy\_rdback. Step 4 is re-regressed with an inclusion of both interactions. Table 6 Step 3 shows a significant effect of Dummy\_rdback on the relationship between Overloan and R&D \_ratio (the coefficient of interaction Dummy\_rdback ∗ Overloan is positive and statistically significant at the 1% level). This suggests that Dummy\_rdback moderates the relationship between overborrowing (M) and firm R&D expenditure (Y). In other words, managers with R&D functional experience engage less in moral hazards such as abandoning innovative opportunities beneficial to firms. Our results, therefore, confirm the role of director human capital in promoting innovation. This result suggests that Hypothesis 3 is empirically supported.


**Table 6.** Chow test of R&D experience moderating role.

**Notes:** Standard errors are in parentheses. \*\*\* *p* < 0.01, \*\* *p* < 0.05, \* *p* < 0.1.
