The local economic and innovation spillover effects of mega firm subsidiaries

Abstract This article studies the local economic and innovation spillovers from subsidiaries of domestically large firms in China. I construct a geo-referenced dataset linking subsidiaries of publicly listed firms (PLFSs) to the universe of patent applications and nighttime lights (NTL), and iteratively select newly established PLFSs in areas without pre-existing nearby listed-firm subsidiaries. Using a staggered difference-in-differences design that compares earlier- and later-entry locations, I estimate the local effect of a single PLFS at a granular spatial scale. PLFS entry increases local economic activity and innovation, raising NTL by 26.4 per cent and local patenting by 95 per cent within 2.5 km. Firm-level decomposition shows both incumbent innovation gains and more innovative entry, suggesting localized innovation growth rather than pure relocation. Further inventor-level analysis provides evidence of creative destruction, as local innovation paths shift, with pre-existing inventors being replaced by new ones. These findings highlight the role of mega-firm subsidiaries in driving local economies and inform the design of firm-specific place-based policies.