Innovation Effects of Government R&D Subsidies Revisited: A New Explanation Based on Attention of External Investors
CHENG Chen, SI Dengkui, LIU Guanchun
Business School, Zhengzhou University; College of Management, China Business Working Capital Management Research Center, Ocean University of China; Lingnan College / Laboratory of Mezzoeconomics and Regional Industrial Coordinated Development, Sun Yat-sen University
Summary:
According to the WIPO 2025 report, China continues to lead the world in patent volume, accounting for nearly 49.5% of global applications. However, international patent filings remain insufficient, and the relatively low proportion of invention patents highlights a need for improvement. Have innovation incentive policies acted as a catalyst for the phenomenon of “high quantity, low quality” in corporate innovation？ Addressing this question will not only help clarify the intrinsic logic behind corporate innovation behavior but also provide a micro-foundation for implementing national innovation strategies and offering practical insights for resolving innovation dilemmas. Adopting a dual perspective of innovation quantity and quality, this study examines whether and how R&D subsidies influence corporate innovation. Theoretically, information asymmetry between external investors and firms, compounded by the high-risk nature of corporate innovation, exacerbates the difficulty for external investors to assess corporate innovation performance. In this context, R&D subsidies signal strong corporate innovation capability and serve as a valuable reference point for external investor attention, thereby increasing the pressure of innovation expectations faced by management. Given that innovation quantity is more readily observable to outsiders, management prioritizes the expansion of innovation quantity over quality to sustain favorable stock market performance. Empirical results based on data from non-financial listed companies from 2007 to 2023 indicate that R&D subsidies significantly increase the quantity of corporate innovation without improving its quality, thereby exacerbating the “high quantity, low quality” dilemma. Specifically, this effect is contingent upon whether a firm receives such subsidies, which validates the external investor attention hypothesis. Subsequent heterogeneity tests reveal that the characteristics of government R&D projects and alternative information channels exert differentiated impacts on the innovation effect of subsidies. Collectively, these results demonstrate that the observed effect weakens when external investor attention regarding subsidies is dispersed. Further mechanism analysis finds that once a firm receives an R&D subsidy, the positive impact of innovation quantity on excess stock returns is significantly attenuated; that is, obtaining subsidies raises external investors' expectations regarding corporate innovation capabilities. Based on the theoretical analysis and empirical findings, this study proposes the following policy recommendations: First, cultivate a favorable and systematic environment for innovation policy. The findings indicate that the external investor attention effect induced by government R&D subsidies exerts a detrimental impact on the quality of corporate innovation. This implies that while industrial policies aim to incentivize an increase in the quantity of innovation, they must prioritize supporting the quality of innovation and encourage firms to adhere to long-termism in their innovative endeavors. Second, foster an equitable and stable external innovation environment. R&D subsidies concentrated on specific market participants exacerbate the negative impact of investor attention. A lack of equity distorts corporate behavior, disrupts technology diffusion and competition, and amplifies uncertainty within the innovation environment. Consequently, subsidies must prioritize equity and enhance the predictability of their acquisition. Third, information asymmetry between the capital market and firms may distort the strategic direction of corporate innovation. Therefore, it is essential to improve capital market institutions and enhance the quality of information disclosure. It would help ensure that innovation quality is fully incorporated into external investors' decision-making. The contributions of this study are in the following aspects: First, it analyzes the innovation effects of government R&D subsidies through the lens of external investor attention. While existing literature has primarily focused on financing constraint effects and strategic innovation behaviors aimed at securing subsidies, this paper attempts to further elucidate the association between R&D subsidies and the “high quantity, low quality” phenomenon in corporate innovation. Second, this study extends the application of external investor attention within the context of corporate investment and financing decisions. Existing corporate finance literature regarding external investor attention has largely focused on examining market reactions. Third, this study uncovers the interactive mechanisms among government R&D subsidies, external investor attention, and corporate innovation, thereby enriching the literature on the relationship between government subsidies and external investors. By establishing the logical chain of “R&D Subsidies-External Investor Attention-Expectation Pressure Effect-Corporate Innovation”,this paper demonstrates how R&D subsidies influence corporate innovation decisions through the channel of external investor attention.
程晨, 司登奎, 刘贯春. 政府研发补助的创新效应再评估——基于外部投资者关注的新解释[J]. 金融研究, 2026, 548(2): 77-94.
CHENG Chen, SI Dengkui, LIU Guanchun. Innovation Effects of Government R&D Subsidies Revisited: A New Explanation Based on Attention of External Investors. Journal of Financial Research, 2026, 548(2): 77-94.
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