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Inducing corporate breakthrough innovation in China: Role of government industrial guidance funds

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  • Gong, Chengming
  • Lei, Ting

Abstract

In recent years, Chinese enterprises have made remarkable progress in achieving breakthrough innovation. This study examines the underlying mechanisms behind this success from the viewpoint of government industrial guidance funds. By matching data on government industrial guidance funds at the city level from 2013 to 2022 with data on A-share listed firms located within those jurisdictions, we empirically examine the impact and mechanisms of government industrial guidance funds on firms’ breakthrough innovation. Empirical results are threefold: first, government industrial guidance funds significantly promote breakthrough innovation among local firms. Second, this effect primarily operates through two channels—alleviating firms’ external financing constraints and enhancing their risk-bearing capacity. Third, heterogeneity analysis reveals that the positive effect of government industrial guidance funds on breakthrough innovation is more pronounced for state-owned enterprises (SOEs) than in non-SOEs. Moreover, this effect is significant for firms with higher research and development (R&D) investment but insignificant for those with lower R&D investment.

Suggested Citation

  • Gong, Chengming & Lei, Ting, 2026. "Inducing corporate breakthrough innovation in China: Role of government industrial guidance funds," Finance Research Letters, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:finlet:v:96:y:2026:i:c:s1544612326003090
    DOI: 10.1016/j.frl.2026.109779
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