Do Government R&D Subsidies Stimulate Corporate R&D Investment? Evidence from a Quasi-natural Experiment

ABSTRACT

This paper examines the impact of Guangdong provincial R&D subsidies policy on corporate R&D investment.¹

¹ Guangdong has ranked first in terms of GDP in all Chinese provinces for many years. There are 643 Chinese A-share stock market listed firms in Guangdong in 2019.

Using a large sample of Chinese firms for the 2011–2017 period and DID methodology, we find that government R&D subsidies have a negative and significant effect on corporate R&D investment. Our findings are robust to a battery of sensitivity tests. Our study supports the ‘crowd out effect’ of government R&D subsidies.

KEYWORDS:

• Government subsidies
• R&D investment
• DID

JEL CLASSIFICATION:

• O32
• O38
• O53

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Guangdong has ranked first in terms of GDP in all Chinese provinces for many years. There are 643 Chinese A-share stock market listed firms in Guangdong in 2019.

² The detailed information is available at http://czt.gd.gov.cn/gkmlpt/content/0/187/post_187689.html#85.

³ We include the holding ratio of the controlling shareholder (Top1) because the concentrated ownership makes the controlling shareholder play an important role in Chinese firm operation (Jiang and Kim 2020)