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The Impacts Of Innovation Efficiency And Government Subsidy On External Financing: Evidence From China

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  • HONGWEI CAO

    (Queen’s Business School, Queen’s University Belfast, United Kingdom)

  • MIN ZHANG

    (Queen’s Business School, Queen’s University Belfast, United Kingdom)

  • HANGFEI GUO

    (Queen’s Business School, Queen’s University Belfast, United Kingdom)

  • MARK PALMER

    (Queen’s Business School, Queen’s University Belfast, United Kingdom)

Abstract

Subsidies from the government and financial resources from external investors play critical roles in supporting firm innovations. We develop a model to empirically investigate the role of firm innovation efficiency in government subsidy allocations and the joint effect of innovation efficiency and government subsidies on external investor decision-making in China. We collect panel data from 337 firms in China over ten years (2011–2021). The results show an inverted U-shaped relationship between innovation efficiency and government subsidies. Both government subsidies and innovation efficiency are positively associated with external financing. Government subsidies positively moderate the impact of innovation efficiency on external financing. The findings provide empirical evidence of the complex relationships among firm innovation efficiency, government subsidies and external financing. In this study, insights are provided into how Chinese government officials and external investors interpret signals of firm innovation. The findings of this study can also be used by managers to attract financial resources and by investors to make investment decisions.

Suggested Citation

  • Hongwei Cao & Min Zhang & Hangfei Guo & Mark Palmer, 2024. "The Impacts Of Innovation Efficiency And Government Subsidy On External Financing: Evidence From China," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 28(03n04), pages 1-29, May.
    • Handle: RePEc:wsi:ijimxx:v:28:y:2024:i:03n04:n:s1363919624500129
    DOI: 10.1142/S1363919624500129
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