More Money, More Honey? An Examination of the Additionality of China’s Government R&D Subsidies




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Taylor & Francis



Peer reviewed



This study considers the interaction effects of government subsidies, financial constraints, and ownership structure on the firm’s net research & development (R&D) based on a sample of 3440 Chinese-listed firms during 2000-2019. Our results indicate that R&D subsidies reduce financial constraints irrespective of ownership type; however, the reduction appears more pronounced for private-owned enterprises (POEs) compared with state-owned enterprises (SOEs). Further analysis reveals that the impact of R&D subsidies on R&D investments depends on the interactive effect between financial constraint and ownership type. For financially constrained SOEs, subsidies spur net R&D investment whereas this is not the case for financially constrained POEs. We also examine the potential factors through which ownership types and financial constraints affect innovation input, namely, institutional development and industrial competition. Our evidence indicates that, in a more institutionally developed province, the effect of subsidies on net R&D input is negative for SOEs, but positive for POEs. In a more competitive industry, SOEs tend to face less agency risk and stronger monitoring, and appear more willing to invest in innovation, while POEs depend more on their financial slack. Our study challenges the ‘more money, more innovation investment’ story, suggesting that alleviating financial constraints does not necessarily stimulate more net R&D investments.


The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.


R&D Subsidies, additionality, crowd-out effect, institutional development, industry competition


Wang, M., Boateng, A., Hua, X. (2021) More Money, More Honey? An Examination of the Additionality of China’s Government R&D Subsidies. The European Journal of Finance, 27 (17), pp.1714-1739


Research Institute

Finance and Banking Research Group (FiBRe)