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Incentive effects of government subsidy on technological innovation: Evidence from pharmaceutical industry

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  • Yang, Tingting
  • Xu, Botong

Abstract

It is important to motivate pharmaceutical companies in technological innovation. We study the incentive effects of three types of government subsidies, including R&D subsidies, tax incentives, and non-R&D subsidies, on pharmaceutical companies’ innovation. Results show that: 1) R&D subsidies have a significant positive effect on the innovation performance, while tax incentives have no positive impact on this. 2) Tax incentives positively (negatively) affect the innovation performance of state-owned (private) companies. 3) R&D subsidies ease the financing constraints and encourage companies to increase R&D investment, thereby enhancing the innovation. Our findings have implications on inspiring innovation in the pharmaceutical industry.

Suggested Citation

  • Yang, Tingting & Xu, Botong, 2023. "Incentive effects of government subsidy on technological innovation: Evidence from pharmaceutical industry," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323003008
    DOI: 10.1016/j.frl.2023.103928
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    References listed on IDEAS

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