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The Impact of Government Subsidies on Private R&D and Firm Performance: Does Ownership Matter in China’s Manufacturing Industry?

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  • Zhenji Jin

    (Department of Management, Qingdao Agricultural University, Qingdao 266109, China)

  • Yue Shang

    (Department of Management, Qingdao Agricultural University, Qingdao 266109, China)

  • Jian Xu

    (Department of Business Administration, Dankook University, Jukjeon-ro 152, Yongin-si, Gyeonggi-do 16809, Korea)

Abstract

Government subsidies as a policy instrument are used to alleviate market failure in research and development (R&D) activities. We aim to understand the influence of government subsidies on enterprises’ R&D investment and performance. We are also interested in examining how the attributes of enterprise ownership act as a moderating variable for the relationship between government subsidies, R&D investment, and firm performance. We use firm-level data on China’s manufacturing listed companies from 2011 to 2015. The results show that receiving government subsidies improves private R&D investment and firm performance, and state-owned enterprises (SOEs) can obtain more subsidies than private-owned enterprises (POEs). However, the impact of government subsidies on private R&D investment is stronger in POEs than in SOEs of China. In additional analyses, we also examine this relationship by industry, region, subsidy intensity, and R&D intensity. This study has important policy implications for regulators to improve the effectiveness of government subsidies.

Suggested Citation

  • Zhenji Jin & Yue Shang & Jian Xu, 2018. "The Impact of Government Subsidies on Private R&D and Firm Performance: Does Ownership Matter in China’s Manufacturing Industry?," Sustainability, MDPI, vol. 10(7), pages 1-20, June.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:7:p:2205-:d:154916
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