Do international sanctions on high-tech firms worsen the peer firms' innovation The emergence of contagion effects

In an era of intensifying geopolitical tensions, international sanctions on high-tech firms have emerged as a critical factor reshaping the global innovation landscape. This study investigates how international sanctions against high-tech firms affect peer firms' innovation through contagion effects. Based on a sample of 3,590 Chinese high-tech firms listed on the A-share market from 2015 to 2021, we examine the effects of sanctions on peer firms' innovation inputs and outputs. Drawing on the contagion effect theory, the results show that sanctions increase peer firms' innovation inputs due to profit-seeking and risk-avoidance motives and decrease innovation outputs due to resource constraints and lagged innovation cycles. Further exploration of boundary conditions demonstrates that government subsidies and industry competitiveness enhance the positive effect on innovation inputs, whereas supplier concentration weakens both the positive effect on inputs and the negative effect on outputs. This study contributes to the literature on contagion effects by revealing the complex interplay among geopolitical events, international sanctions, and firm innovation.