The more the merrier? Chinese government R&D subsidies, dependence, and firm innovation performance

Abstract

With the understanding that innovation and high technology industries are essential for sustained economic development, government R&D subsidies have become ubiquitous. However, existing studies on the impact of R&D subsidies have found mixed or conflicting results. Insights from resource dependence theory (RDT) and the Attention‐Based View (ABV) help account for these discrepancies. This study of Chinese high technology firms using the Innovation‐Oriented Firms Database from the Ministry of Science and Technology, finds an inverted U‐shaped relationship between R&D subsidies and innovation performance. The article shows that high government resource dependency, expressed through high percentage of R&D spending coming from government subsidies, diverts attention resources in recipient firms and results in declining innovation performance. The article then tests the impacts of different managerial responses on the dependency‐innovation relationship and find that technology alliances and employee feedback systems mitigate these negative effects. These findings have implications for government innovation policies and firm‐level responses to those policies: government subsidy policies have limits to their effectiveness and firms have strategic options for capitalizing on government resources without sacrificing innovativeness.

Local-province chief executive officer and managerial myopia: Evidence from China

“…The coefficient for GovSupport is insignificant though, suggesting that if the company hires non-local-province CEO, the government subsidy has no significant effect on the company's innovation activity. This result is consistent with the findings in the literature, that the effect of government subsidy for innovation is ambiguous (e.g., inverted U-shaped) in China (Yi et al, 2021;Xia et al, 2022). Since the 75th percentile of GovSupport in the sample is 0.055, at least 75% of the companies receive a quite low level of government financial support, and the locality effect on the managerial myopic behaviors is still significantly negative (−0.323 given the government subsidy that the company receives accounts for 5.5% of its total R&D expenditure).…”

Examining the Role of Stakeholder-Oriented Corporate Governance in Achieving Sustainable Development: Evidence from the SME CSR in the Context of China

“…Dependence on government support consequently results in declining performance [137]. Furthermore, companies that receive more subsidies are sometimes the worst performers [138]. To repay the government, more investment in CSR devastates short-term profitability.…”

The impact of government subsidies on firms’ innovation inputs and outputs in the early stage of the wind industry development

“…Firms in the early-stage industry might be more likely to use R&D funding in non-R&D activities. An interviewee in Yi et al (2021) points out that “The problem with using government grants to achieve technology breakthroughs is that the government gives and gives, and both it and the recipient firm forget what the subsidies were for in the first place.” Therefore, if the goal of government subsidies is to promote innovation, follow-up regulations on the use of government subsidies for R&D activities are needed.…”