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Financial constraints, government subsidies, and corporate innovation

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  • Qi Li
  • Jiaojiao Wang
  • Guohua Cao
  • Jing Zhang

Abstract

To investigate the relationships between financial constraints, government subsidies, and corporate innovation, a semi-logarithmic fixed-effect panel model and mediation effect test were applied, based on the data of Chinese listed companies from 2007 to 2017. We find that (1) financial constraints suppress corporate innovation. (2) Government subsidies are targeted at bailing out firms facing financial constraints. (3) Government subsidies promote corporate innovation (4) Government subsidies partially offset the suppression of financial constraints on innovation. We contribute to the fields of public finance, corporate finance, and corporate innovation by: (1) justifying the government subsidies target strategy as a bailout of corporate financial constraints, (2) verifying the corporate-innovation promotion of government subsidies, thus justifying the efficiency of government subsidies, and (3) showing that different types of innovation benefit differently from subsidies, thus justifying subsidies as a structural innovation engine.

Suggested Citation

  • Qi Li & Jiaojiao Wang & Guohua Cao & Jing Zhang, 2021. "Financial constraints, government subsidies, and corporate innovation," PLOS ONE, Public Library of Science, vol. 16(11), pages 1-24, November.
    • Handle: RePEc:plo:pone00:0259642
    DOI: 10.1371/journal.pone.0259642
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    Cited by:

    1. Lei, Xue & Xu, Xueguo, 2025. "Innovation in the storm: How typhoons are reshaping the corporate R&D landscape," Technology in Society, Elsevier, vol. 81(C).
    2. Yazhou Wu & Xiaomin Li & Ce Zhang & Shiqi Wang, 2024. "The impact of government subsidies on technological innovation of new energy vehicle enterprises: from the perspective of industry chain," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(10), pages 25589-25607, October.
    3. Siqi Li & Mengdi Sun, 2024. "Spillover effects of government subsidies on outward foreign direct investment: Evidence from China," Review of International Economics, Wiley Blackwell, vol. 32(4), pages 1521-1566, September.

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