Financial constraints, government subsidies, and corporate innovation

Abstract

To investigate the relationships between financial constraints, government subsidies, and corporate innovation, a semi-logarithmic fixed-effect panel model and mediation effect test were applied, based on the data of Chinese listed companies from 2007 to 2017. We find that (1) financial constraints suppress corporate innovation. (2) Government subsidies are targeted at bailing out firms facing financial constraints. (3) Government subsidies promote corporate innovation (4) Government subsidies partially offset the suppression of financial constraints on innovation. We contribute to the fields of public finance, corporate finance, and corporate innovation by: (1) justifying the government subsidies target strategy as a bailout of corporate financial constraints, (2) verifying the corporate-innovation promotion of government subsidies, thus justifying the efficiency of government subsidies, and (3) showing that different types of innovation benefit differently from subsidies, thus justifying subsidies as a structural innovation engine.

Research on the impact of digital finance on the innovation performance of enterprises

“…Financial constraints are among the important factors restricting enterprise innovation at the present stage, which is also consistent with the research conclusions of Zhang and Jin (2021), Zhang (2021), Yin et al. (2019), Li et al. (2021) and Amara et al.…”

“…According to the report of the World Bank (Claessens and Tzioumis, 2006), about 75% of Chinese listed companies have financial constraints of varying degrees. Financial constraints are among the important factors restricting enterprise innovation at the present stage, which is also consistent with the research conclusions of Zhang and Jin (2021), Zhang (2021), Yin et al (2019), Li et al (2021) and Amara et al (2016).…”

Promote Green Innovation in Manufacturing Enterprises in the Aspect of Government Subsidies in China

“…Therefore, the key to incentivizing business participation in environmental governance is to internalize the problem of externalities, including charging companies for polluting and subsidizing them for cutting pollution [15,16]. In this context, government subsidies become a vital tool to inspire firms to undertake green innovation [17][18][19], as they can not only fill the funding gap in R&D directly but also reduce the uncertainty and risk of green innovation [20][21][22]. However, not unlike in developed countries, where people have voted to force the government to strictly enforce environmental laws and regulations [23], the phenomenon of "government failure" in green innovation of manufacturing enterprises is common in China due to incomplete information and weak supervision, which means the measures of the government are not always as effective as in theory [24][25][26].…”

Do government subsidies and financing constraints play a dominant role in the effect of state ownership on corporate innovation? Evidence from China

“…To mitigate the possible endogeneity problem between state ownership, government subsidies, financing constraints and corporate innovation due to potential reverse causality, we refer to Jayaraman and Milbourn (2012), Gao and Zheng (2020), Ovtchinnikov et al (2020) and Li et al (2021) to lag state ownership, government subsidies, financing constraints, and all the control variables by one period. We construct the following chain multiple of mediating effects models (Li et al, 2021; Ratajczak, 2021) to investigate the impact of state ownership on corporate innovation and the transmission mechanism through government subsidies and financing constraints.…”