Do R&D Subsidies Really Stimulate Firms’ R&D Self-financing Investment: New Evidence from China’s Listed Firms
LI Wanfu, DU Jing, ZHANG Huai
School of Accounting, Nanjing University of Finance & Economics; Sun Yat-sen Business School, Sun Yat-sen University; Nanyang Business School, Nanyang Technological University
Abstract:
The hand of government support plays an important role in R&D “market failure”. Although it still lacks consistent and convincing empirical evidence about whether government subsidies have met government’s expectation, this paper provides a new empirical evidence for this problem by eliminating the noise from non-R&D subsidies and distinguishing between firms’ R&D self-financing investment and government innovation subsidies. We find that, despite government R&D subsidies and firms’ investment in innovation being positively related, firms increase R&D investment by significantly less than 1 unit even when the government gives firms 1 unit R&D subsidy. With the increase of government R&D subsidies, firms’ R&D self-financing investment is decreasing. This suggests that, R&D subsidies cannot really stimulate firms’ self-financing innovation, overall. Further studies show that firms’ industrial attributes, internal control and external legal environment play important roles in the incentive effects of government subsidies. For the firms which belong to the high-tech industry, are surrounded by better legal environment or have better internal control, government subsidies have the expected incentive effects on firms’ R&D investment.
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