The impact of relaxing technology export regulations on corporate innovation

•Relaxing TERs increases the number of innovative patent applications of a specific firm by increasing its R&D investment.•Relaxing TERs raises outbound direct investments (ODI).•The innovation outcomes and innovation quality of the firm significantly increase after technologies are removed from TERs. By leveraging China's 2008 revision of the “Catalogue of Technologies Prohibited and Restricted from Export” as an exogenous shock, we conduct difference-in-difference regressions to examine the impact of relaxing technology export restrictions (TERs) on corporate innovation. The results show that relaxing TERs increases the number of innovative patent applications of a specific firm by increasing its R&D investment. Additional tests suggest that relaxing TERs raises outbound direct investments (ODI). Overall, relaxing TERs motivates firms to allocate more resources to innovation projects. Hence, the innovation outcomes and innovation quality of the firm significantly increase after technologies are removed from TERs.