Selective R&D subsidies and firms’ application strategies

ABSTRACT

‘Picking-the-winners’ selective R&D subsidies are provided to a few firms with high innovation capabilities. Thus, the applicants for subsidies might send misleading signals to stand out from others. This paper explores firms’ application strategies and finds that firms tend to increase the quantity of their R&D outputs as a signal of being highly innovative, even at the expense of reducing innovation quality.

KEYWORDS:

• Selective R&D subsidy
• application strategy
• major innovation
• minor innovation

JEL CLASSIFICATION:

• L53
• O31
• O38

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Criterion (3) is not included in the analysis due to data limitations.

² Source: http://www.cnipa.gov.cn/

³ For details, see Luo and Sun (2020). We use nearest-neighbour matching to pair the observations. The covariates used in matching include the growth rate of R&D expenses, R&D intensity, R&D expenses per capita, the share of R&D personnel, firm innovation capacity and R&D funds from other programs.

⁴ For the derivation of this model, see Shaver (1998).

⁵ To save space, we do not report the results of the propensity score matching, application choice model or fixed effects model.

Additional information

Funding

This work was supported bythe Shanghai Soft Science Fund [Grant number 19692110600]; and the Shanghai Soft Science Fund [Grant number 20692180400].