Quality (philosophy)

Macroeconomics

Linguistics

Philosophy

Government (linguistics)

China

Economics

Market economy

Business

Subsidy

Crowding out

Political science

Monetary economics

Public economics

Epistemology

Industrial organization

Economic Modelling

This study examined whether government subsidies improve innovation performance in China. Existing studies provide conflicting insights regarding the impact of government subsidies on innovation performance. Government subsidies have a crowding-out effect and a crowding-in effect on innovation performance through both complementary and substitution effect mechanisms. Using data from 2012 to 2019 in Chinese listed companies, we found an inverted U-relationship between subsidies and innovation performance and that internal control plays a significant moderating role between them. The inverted U-relationship is more significant in high-quality innovative firms and in manufacturing, but firm size and subsidy amounts have moderating effects. Furthermore, continuity of government subsidies also has the same impact on innovation performance. Our results indicate that Chinese government subsidies contribute to innovation performance, but the role is limited by the level of management and quality of innovation, the industry in which the firm operates, and the size and continuity of government subsidies.

Can government subsidies improve innovation performance? Evidence from Chinese listed companies