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Signaling legitimacy for technology differentiation: the distinct roles of government subsidies

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  • You, Li
  • Xu, Jingwei
  • Qiu, Wenkang
  • Liao, Bing

Abstract

This study examines the role of government subsidies in shaping the relationship between technology differentiation and firm performance. Using data from Chinese listed firms, we identify an inverted U-shaped correlation between technology differentiation and firm performance. Initially, broad technology differentiation outperforms core technology differentiation in enhancing performance, but suffers more severe performance penalties beyond a threshold. Government subsidies, especially selective ones, function as crucial signals that amplify the performance benefits of moderate differentiation. This effect is particularly pronounced for resource-constrained firms that lack political connections or access to external capital. This study extends signaling theory by demonstrating how subsidy signaling interacts with firms’ technology strategies in transition economies.

Suggested Citation

  • You, Li & Xu, Jingwei & Qiu, Wenkang & Liao, Bing, 2025. "Signaling legitimacy for technology differentiation: the distinct roles of government subsidies," Finance Research Letters, Elsevier, vol. 86(PB).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pb:s1544612325016757
    DOI: 10.1016/j.frl.2025.108421
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    References listed on IDEAS

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