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Government-guided funds and the rise of corporate AI: Evidence from China

Author

Listed:
  • Lu, Junwei
  • Gao, He
  • Yang, Laifeng
  • Liu, Zhangxin (Frank)

Abstract

We investigate how Government-Guided Funds (GGFs) influence corporate artificial intelligence (AI) development in China. Using panel data for Chinese A-share listed firms from 2012 to 2023, we find that GGFs significantly promote AI advancement through three complementary mechanisms: resource empowerment, signalling certification, and facilitation of firms' integration into platform ecosystems. This effect remains robust across multiple empirical tests. The positive impact of GGFs is stronger among firms facing more intense market competition, in regions with higher levels of intellectual property protection, and in areas where governments place greater policy emphasis on AI. Further analyses show that GGFs do not crowd out non-AI innovation; instead, they generate an innovation diffusion effect. By advancing firms' AI capabilities, GGFs contribute to employment growth, workforce upgrading, and higher labour income shares, highlighting their dual role in promoting technological innovation and improving social welfare.

Suggested Citation

  • Lu, Junwei & Gao, He & Yang, Laifeng & Liu, Zhangxin (Frank), 2026. "Government-guided funds and the rise of corporate AI: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:pacfin:v:95:y:2026:i:c:s0927538x25003415
    DOI: 10.1016/j.pacfin.2025.103004
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    Keywords

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    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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