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Can government subsidies improve innovation performance? Evidence from Chinese listed companies

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Listed:
  • Xu, Ronghua
  • Shen, Yuxin
  • Liu, Meng
  • Li, Lu
  • Xia, Xuehua
  • Luo, Kaixin

Abstract

This study examined whether government subsidies improve innovation performance in China. Existing studies provide conflicting insights regarding the impact of government subsidies on innovation performance. Government subsidies have a crowding-out effect and a crowding-in effect on innovation performance through both complementary and substitution effect mechanisms. Using data from 2012 to 2019 in Chinese listed companies, we found an inverted U-relationship between subsidies and innovation performance and that internal control plays a significant moderating role between them. The inverted U-relationship is more significant in high-quality innovative firms and in manufacturing, but firm size and subsidy amounts have moderating effects. Furthermore, continuity of government subsidies also has the same impact on innovation performance. Our results indicate that Chinese government subsidies contribute to innovation performance, but the role is limited by the level of management and quality of innovation, the industry in which the firm operates, and the size and continuity of government subsidies.

Suggested Citation

  • Xu, Ronghua & Shen, Yuxin & Liu, Meng & Li, Lu & Xia, Xuehua & Luo, Kaixin, 2023. "Can government subsidies improve innovation performance? Evidence from Chinese listed companies," Economic Modelling, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322003881
    DOI: 10.1016/j.econmod.2022.106151
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    2. Kumbhakar, Subal C. & Li, Mingyang & Lien, Gudbrand, 2023. "Do subsidies matter in productivity and profitability changes?," Economic Modelling, Elsevier, vol. 123(C).

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    More about this item

    Keywords

    Innovation performance; Government subsidies; Internal control;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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