Abstract:
A differentiation-based competitive strategy helps firms build technological barriers and enhance earnings persistence, yet it entails substantial upfront investment, long payback periods, and uncertain returns. Whether patient capital can promote firms' adoption of differentiation-based competitive strategies thus merits investigation. Using a sample of Shanghai and Shenzhen A-share listed companies, this study finds that patient capital promotes firms' implementation of differentiation-based competitive strategies, and this effect is more pronounced among firms in highly competitive industries, firms pursuing non-growth-oriented development strategies, and firms in the growth and decline phases. The underlying mechanisms are threefold. First, patient capital alleviates firms' financing constraints by directly injecting funds, exerting a positive signaling effect to attract other investors, and participating in corporate governance to reduce information asymmetry, thereby providing firms with long-term and stable financial support. Second, it curbs managerial myopia by relieving the pressure of short-term performance evaluation on the management, providing managers with cutting-edge industry information, and consolidating various R & D resources, thereby guiding management toward the pursuit of differentiation-based competitive strategies. Third, it enhances corporate risk-taking by establishing dedicated risk compensation funds to form a risk-sharing mechanism with firms, and by participating in corporate governance to improve firms' capacity to identify, assess, and manage risks, thereby encouraging firms to choose high-value-added differentiation pathways. Economic consequence tests indicate that, after promoting firms' implementation of differentiation-based competitive strategies, patient capital further helps firms gain market competitive advantages. This study not only enriches the research on corporate competitive strategy but also provides a basis for firms to introduce patient capital.
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