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The certification effect of government R&D subsidies on innovative entrepreneurial firms’ access to bank finance: evidence from China

Author

Listed:
  • Li Li

    (Nankai University)

  • Jean Chen

    (Xian Jiaotong-Liverpool University)

  • Hongli Gao

    (Nankai University)

  • Li Xie

    (Xian Jiaotong-Liverpool University)

Abstract

In this paper, we argue that obtaining government R&D subsidies has a certification effect and is used by innovative entrepreneurial firms as a legitimation strategy to access bank finance. We extend the extant literature on the certification effect by combining legitimacy theory with information asymmetry to build our theoretical framework. We test our theoretical model under China’s unique institutional setting, in particular, the weak intellectual property rights (IPR) protection. Using 549 listed and 192 unlisted Chinese innovative entrepreneurial firms from 2009 to 2013, we find a positive certification effect on the acquisition of bank loans for all those sample firms. This positive effect is more profound in unlisted firms in our sample than the listed ones. We further find that regional variation of IPR protection has a moderating effect on the effectiveness of the certification. The certification effect is more significant in those regions where IPR protection is weaker.

Suggested Citation

  • Li Li & Jean Chen & Hongli Gao & Li Xie, 2019. "The certification effect of government R&D subsidies on innovative entrepreneurial firms’ access to bank finance: evidence from China," Small Business Economics, Springer, vol. 52(1), pages 241-259, January.
    • Handle: RePEc:kap:sbusec:v:52:y:2019:i:1:d:10.1007_s11187-018-0024-6
    DOI: 10.1007/s11187-018-0024-6
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    3. Bellucci, Andrea & Borisov, Alexander & Giombini, Germana & Zazzaro, Alberto, 2023. "Information asymmetry, external certification, and the cost of bank debt," Journal of Corporate Finance, Elsevier, vol. 78(C).
    4. Dorothea Schäfer & Andreas Stephan & Sören Fuhrmeister, 2022. "The Impact of Public Procurement on Financial Barriers to Green Innovation: Evidence from European Community Innovation Survey," Discussion Papers of DIW Berlin 2014, DIW Berlin, German Institute for Economic Research.
    5. Berger, Marius & Hottenrott, Hanna, 2021. "Start-up subsidies and the sources of venture capital," Journal of Business Venturing Insights, Elsevier, vol. 16(C).
    6. Berger, Marius & Gottschalk, Sandra, 2021. "Financing and advising early stage startups: The effect of angel investor subsidies," ZEW Discussion Papers 21-069, ZEW - Leibniz Centre for European Economic Research.
    7. Zhangsheng Jiang, 2020. "Can the Gap and Rating of Market Expectation Promote Innovation Input of China Manufacturers?," Sustainability, MDPI, vol. 12(5), pages 1-19, March.
    8. Weijiang Liu & Yue Bai, 2021. "An Analysis on the Influence of R&D Fiscal and Tax Subsidies on Regional Innovation Efficiency: Empirical Evidence from China," Sustainability, MDPI, vol. 13(22), pages 1-24, November.
    9. Andrea Bellucci & Luca Pennacchio & Alberto Zazzaro, 2019. "R&D Subsidies and Firms’ Debt Financing," CSEF Working Papers 527, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    10. Wei Huang & Mahnoor Sattar, 2021. "Corporate finance policies, subsidies and R&D: Evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3875-3891, July.
    11. Shiyuan Liu & Jiang Du & Weike Zhang & Xiaoli Tian, 2021. "Opening the box of subsidies: which is more effective for innovation?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(3), pages 421-449, September.
    12. Xue Yang & Hao Zhang & Die Hu & Bingde Wu, 2023. "The timing dilemma: understanding the determinants of innovative startups’ patent collateralization for loans," Small Business Economics, Springer, vol. 60(1), pages 371-403, January.
    13. Dongmei Wang & Yangyang Sun, 2022. "The effect of different government subsidies on total-factor productivity: Evidence from private listed manufacturing enterprises in China," PLOS ONE, Public Library of Science, vol. 17(1), pages 1-19, January.
    14. Yi Shen & Minghan Lyu & Jiali Zhu, 2022. "Air Pollution and Corporate Green Financial Constraints: Evidence from China’s Listed Companies," IJERPH, MDPI, vol. 19(22), pages 1-23, November.
    15. Chaoying Lin & Lerong He & Guangqing Yang, 2021. "Targeted monetary policy and financing constraints of Chinese small businesses," Small Business Economics, Springer, vol. 57(4), pages 2107-2124, December.
    16. Dan Yu & Kewei Hu & Yugui Hao, 2023. "The Effect of Local Government Environmental Concern on Corporate Environmental Investment: Evidence from China," Sustainability, MDPI, vol. 15(15), pages 1-20, July.
    17. Hua Cheng & Yinhong Yu & Shiyu Zhang, 2024. "Subsidies, green innovation, and the sustainable performance: evidence from heavy-polluting enterprises in China," Journal of Environmental Studies and Sciences, Springer;Association of Environmental Studies and Sciences, vol. 14(1), pages 102-116, March.
    18. Guo, Di & Guo, Yan & Jiang, Kun, 2022. "Government R&D support and firms’ access to external financing: funding effects, certification effects, or both?," Technovation, Elsevier, vol. 115(C).
    19. Bach Nguyen & Hoa Do & Chau Le, 2022. "How much state ownership do hybrid firms need for better performance?," Small Business Economics, Springer, vol. 59(3), pages 845-871, October.
    20. Junxiu Sun & Feng Wang & Haitao Yin & Rui Zhao, 2022. "Death or rebirth? How small‐ and medium‐sized enterprises respond to responsible investment," Business Strategy and the Environment, Wiley Blackwell, vol. 31(4), pages 1749-1762, May.
    21. Ziyi Zhao & Banghao Zhou, 2022. "Latecomers’ Isomorphic R&D Strategy and the Relationship With Performance: A Study on Chinese Pharmaceutical Firms," SAGE Open, , vol. 12(2), pages 21582440221, May.
    22. Martin Hemmert & Adam R. Cross & Ying Cheng & Jae-Jin Kim & Masahiro Kotosaka & Franz Waldenberger & Leven J. Zheng, 2022. "New venture entrepreneurship and context in East Asia: a systematic literature review," Asian Business & Management, Palgrave Macmillan, vol. 21(5), pages 831-865, November.
    23. Maoyan She & Die Hu & Yuandi Wang & Li Li, 2023. "How do top management team characteristics affect government R&D subsidy grants? Evidence from an information economics perspective," Asian Business & Management, Palgrave Macmillan, vol. 22(1), pages 330-353, February.
    24. Peter Grajzl & Jaka Cepec & Barbara Mörec, 2023. "Weaned off public money: The effect of discontinued reception of public cash on firm outcomes," Kyklos, Wiley Blackwell, vol. 76(1), pages 41-76, February.

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    More about this item

    Keywords

    Legitimacy; Certification; Financial constraints; Innovative entrepreneurial firms; Government R&D subsidies; IPR protection; China;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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