The effects of public R&D subsidized loans on firms’ R&D outputs: evidence from China
Abstract
R&D subsidized loans (tiexi daikuan) is an effective market-driven solution to promote firms’ R&D outputs, including patent applications and new product sales, in China. However, empirical examination on the effects of subsidized loans is insufficient. Using a panel data of manufacturing firms of Jiangsu Province from 2010 to 2014, the study investigates the effects of R&D subsidized loans on firms’ R&D outputs in comparison to that of the direct R&D grants. The results show that R&D subsidized loan recipients significantly outperform those who only receive direct grants in terms of new product sales. Meanwhile, subsidized loans inhibit the recipients’ exploratory patent applications and discourage R&D activities with higher risks. This study contributes to R&D subsidy literature and extends the knowledge in the roles of different types of public sponsorships on firms’ innovation.
Keyword : R&D subsidy, subsidized loans, R&D outputs, China, innovation policy, exploratory patents
How to Cite
Gao, Y., Zhang, S., & Hu, Y. (2021). The effects of public R&D subsidized loans on firms’ R&D outputs: evidence from China. Journal of Business Economics and Management, 22(6), 1655-1678. https://doi.org/10.3846/jbem.2021.14581
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Bronzini, R., & Piselli, P. (2016). The impact of R&D subsidies on firm innovation. Research Policy, 45(2), 442–457. https://doi.org/10.1016/j.respol.2015.10.008
Chapman, G., & Hewitt-Dundas, N. (2018). The effect of public support on senior manager attitudes to innovation. Technovation, 69, 28–39. https://doi.org/10.1016/j.technovation.2017.10.004
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Huergo, E., & Moreno, L. (2017). Subsidies or loans? Evaluating the impact of R&D support programmes. Research Policy, 46(7), 1198–1214. https://doi.org/10.1016/j.respol.2017.05.006
Huergo, E., & Trenado, M. (2010). The application for and the awarding of low-interest credits to finance R&D projects. Review of Industrial Organization, 37(3), 237–259. https://doi.org/10.1007/s11151-010-9263-7
Hussinger, K. (2008). R&D and subsidies at the firm level: An application of parametric and semipara-metric two-step selection models. Journal of Applied Econometrics, 23(6), 729–747. https://doi.org/10.1002/jae.1016
Jia, N., Huang, K. G., & Zhang, C. M. (2019). Public governance, corporate governance, and firm innovation: An examination of state-owned enterprises. Academy of Management Journal, 62(1), 220–247. https://doi.org/10.5465/amj.2016.0543
Jiang, G. G., Wang, D., & Chen, J. (2012). Market analysis and policy design of LED industry in Jiangsu Province. Advanced Materials Research, 512–515, 2705–2708. https://doi.org/10.4028/www.scientific.net/AMR.512-515.2705
Jourdan, J., & Kivleniece, I. (2017). Too much of a good thing? The dual effect of public sponsorship on organizational performance. Academy of Management Journal, 60(1), 55–77. https://doi.org/10.5465/amj.2014.1007
Lach, S. (1995). Patents and productivity growth at the industry level: A first look. Economics Letters, 49(1), 101–108. https://doi.org/10.1016/0165-1765(94)00618-C
Li, J., Xia, J., & Zajac, E. J. (2018). On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms. Strategic Management Journal, 39(1), 193–216. https://doi.org/10.1002/smj.2697
Liang, L. H. (2014, June). Analysis the new pattern of solar PV industry development in China and the enlightenment from Germany. In 2014 IEEE 9th Conference on Industrial Electronics and Applications (ICIEA) (pp. 550–555). Hangzhou, China. IEEE. https://doi.org/10.1109/ICIEA.2014.6931225
Liu, X. L., & White, S. (2001). Comparing innovation systems: A framework and application to China’s transitional context. Research Policy, 30(7), 1091–1114. https://doi.org/10.1016/S0048-7333(00)00132-3
Liu, X., Li, X., & Li, H. (2016). R&D subsidies and business R&D: Evidence from high-tech manufacturing firms in Jiangsu. China Economic Review, 41, 1–22. https://doi.org/10.1016/j.chieco.2016.08.003
Liu, X., Schwaag Serger, S., Tagscherer, U., & Chang, A. Y. (2017). Beyond catch-up – can a new innovation policy help China overcome the middle income trap? Science and Public Policy, 44(5), 656–669. https://doi.org/10.1093/scipol/scw092
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Nelson, R. R. (1959). The simple economics of basic scientific research. Journal of Political Economy, 67(3), 297–306. https://doi.org/10.1086/258177
Perez-Sebastian, F. (2015). Market failure, government inefficiency, and optimal R&D policy. Economics Letters, 128, 43–47. https://doi.org/10.1016/j.econlet.2015.01.012
Rangan, S., Samii, R., & Van Wassenhove, L. N. (2006). Constructive partnerships: When alliances between private firms and public actors can enable creative strategies. Academy of Management Review, 31(3), 738–751. https://doi.org/10.5465/amr.2006.21318928
Tang, Y., Hu, X., Petti, C., & Thürer, M. (2019). Institutional incentives and pressures in Chinese manufacturing firms’ innovation. Management Decision, 58(5), 812–827. https://doi.org/10.1108/MD-08-2018-0933
Teachman, J. D. (1980). Analysis of population diversity: Measures of qualitative variation. Sociological Methods & Research, 8(3), 341–362. https://doi.org/10.1177/004912418000800305
Verona, G. (1999). A resource-based view of product development. Academy of Management Review, 24(1), 132–142. https://doi.org/10.5465/amr.1999.1580445
Wang, Y., Li, J., & Furman, J. L. (2017). Firm performance and state innovation funding: Evidence from China’s Innofund program. Research Policy, 46(6), 1142–1161. https://doi.org/10.1016/j.respol.2017.05.001
Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180. https://doi.org/10.1002/smj.4250050207
Xin, F., Zhang, J., Chen, Z., & Du, X. (2016). Do the types of subsidies and firms’ heterogeneity affect the effectiveness of public R&D subsidies? Evidence from China’s Innofund programme. Asian Journal of Technology Innovation, 24(3), 317–337. https://doi.org/10.1080/19761597.2016.1256705
Zhao, B., & Ziedonis, R. (2020). State governments as financiers of technology startups: Evidence from Michigan’s R&D loan program. Research Policy, 49(4), 103926. https://doi.org/10.1016/j.respol.2020.103926
Zheng, W., Singh, K., & Mitchell, W. (2015). Buffering and enabling: The impact of interlocking political ties on firm survival and sales growth. Strategic Management Journal, 36(11), 1615–1636. https://doi.org/10.1002/smj.2301
Zhou, J., Li, J., Jiao, H., Qiu, H., & Liu, Z. (2020). The more funding the better? The moderating role of knowledge stock on the effects of different government-funded research projects on firm innovation in Chinese cultural and creative industries. Technovation, 92–93, 102059. https://doi.org/10.1016/j.technovation.2018.11.002
Zuniga-Vicente, J. A., Alonso-Borrego, C., Forcadell, F. J., & Galan, J. I. (2014). Assessing the effect of public subsidies on firm R&D investment: A survey. Journal of Economic Surveys, 28(1), 36–67. https://doi.org/10.1111/j.1467-6419.2012.00738.x
Antonelli, C., & Crespi, F. (2013). The “Matthew effect” in R&D public subsidies: The Italian evidence. Technological Forecasting and Social Change, 80(8), 1523–1534. https://doi.org/10.1016/j.techfore.2013.03.008
Arrow, K. (1962). Economic welfare and the allocation of resources for invention. In R. R. Nelson (Ed.), The rate and direction of inventive activity: Economic and social factors (pp. 609–626). Princeton University Press. https://doi.org/10.1515/9781400879762-024
Beck, M., Lopes-Bento, C., & Schenker-Wicki, A. (2016). Radical or incremental: Where does R&D policy hit? Research Policy, 45(4), 869–883. https://doi.org/10.1016/j.respol.2016.01.010
Benner, M. J., & Tushman, M. (2002). Process management and technological innovation: A longitudinal study of the photography and paint industries. Administrative Science Quarterly, 47(4), 676–706. https://doi.org/10.2307/3094913
Bertoni, F., Martí, J., & Reverte, C. (2019). The impact of government-supported participative loans on the growth of entrepreneurial ventures. Research Policy, 48(1), 371–384. https://doi.org/10.1016/j.respol.2018.09.006
Boeing, P. (2016). The allocation and effectiveness of China’s R&D subsidies – Evidence from listed firms. Research Policy, 45(9), 1774–1789. https://doi.org/10.1016/j.respol.2016.05.007
Bronzini, R., & Piselli, P. (2016). The impact of R&D subsidies on firm innovation. Research Policy, 45(2), 442–457. https://doi.org/10.1016/j.respol.2015.10.008
Chapman, G., & Hewitt-Dundas, N. (2018). The effect of public support on senior manager attitudes to innovation. Technovation, 69, 28–39. https://doi.org/10.1016/j.technovation.2017.10.004
Clarysse, B., Wright, M., & Mustar, P. (2009). Behavioural additionality of R&D subsidies: A learning perspective. Research Policy, 38(10), 1517–1533. https://doi.org/10.1016/j.respol.2009.09.003
David, P. A., Hall, B. H., & Toole, A. A. (2000). Is public R&D a complement or substitute for private R&D? A review of the econometric evidence. Research Policy, 29(4–5), 497–529. https://doi.org/10.1016/S0048-7333(99)00087-6
Dimos, C., & Pugh, G. (2016). The effectiveness of R&D subsidies: A meta-regression analysis of the evaluation literature. Research Policy, 45(4), 797–815. https://doi.org/10.1016/j.respol.2016.01.002
Dixit, A. (1997). Power of incentives in private versus public organizations. The American Economic Review, 87(2), 378–382.
Grau, T., Huo, M., & Neuhoff, K. (2012). Survey of photovoltaic industry and policy in Germany and China. Energy Policy, 51, 20–37. https://doi.org/10.1016/j.enpol.2012.03.082
Griliches, Z. (1990). Patent statistics as economic indicators: A survey. Journal of Economic Literature, 28(4), 1661–1707. https://www.jstor.org/stable/2727442
Guan, J., & Yam, R. C. M. (2015). Effects of government financial incentives on firms’ innovation performance in China: Evidences from Beijing in the 1990s. Research Policy, 44(1), 273–282. https://doi.org/10.1016/j.respol.2014.09.001
Guo, D., Guo, Y., & Jiang, K. (2016). Government-subsidized R&D and firm innovation: Evidence from China. Research Policy, 45(6), 1129–1144. https://doi.org/10.1016/j.respol.2016.03.002
Hall, B., & Van Reenen, J. (2000). How effective are fiscal incentives for R&D? A review of the evidence. Research Policy, 29(4–5), 449–469. https://doi.org/10.1016/S0048-7333(99)00085-2
Hall, R. (1992). The strategic analysis of intangible resources. Strategic Management Journal, 13(2), 135–144. https://doi.org/10.1002/smj.4250130205
Hottenrott, H., & Richstein, R. (2020). Start-up subsidies: Does the policy instrument matter? Research Policy, 49(1), 103888. https://doi.org/10.1016/j.respol.2019.103888
Huang, Q., Jiang, M. S., & Miao, J. (2016). Effect of government subsidization on Chinese Industrial firms’ technological innovation efficiency: A stochastic frontier analysis. Journal of Business Economics and Management, 17(2), 187–200. https://doi.org/10.3846/16111699.2015.1061590
Huergo, E., Trenado, M., & Ubierna, A. (2016). The impact of public support on firm propensity to engage in R&D: Spanish experience. Technological Forecasting and Social Change, 113(B), 206–219. https://doi.org/10.1016/j.techfore.2015.05.011
Huergo, E., & Moreno, L. (2017). Subsidies or loans? Evaluating the impact of R&D support programmes. Research Policy, 46(7), 1198–1214. https://doi.org/10.1016/j.respol.2017.05.006
Huergo, E., & Trenado, M. (2010). The application for and the awarding of low-interest credits to finance R&D projects. Review of Industrial Organization, 37(3), 237–259. https://doi.org/10.1007/s11151-010-9263-7
Hussinger, K. (2008). R&D and subsidies at the firm level: An application of parametric and semipara-metric two-step selection models. Journal of Applied Econometrics, 23(6), 729–747. https://doi.org/10.1002/jae.1016
Jia, N., Huang, K. G., & Zhang, C. M. (2019). Public governance, corporate governance, and firm innovation: An examination of state-owned enterprises. Academy of Management Journal, 62(1), 220–247. https://doi.org/10.5465/amj.2016.0543
Jiang, G. G., Wang, D., & Chen, J. (2012). Market analysis and policy design of LED industry in Jiangsu Province. Advanced Materials Research, 512–515, 2705–2708. https://doi.org/10.4028/www.scientific.net/AMR.512-515.2705
Jourdan, J., & Kivleniece, I. (2017). Too much of a good thing? The dual effect of public sponsorship on organizational performance. Academy of Management Journal, 60(1), 55–77. https://doi.org/10.5465/amj.2014.1007
Lach, S. (1995). Patents and productivity growth at the industry level: A first look. Economics Letters, 49(1), 101–108. https://doi.org/10.1016/0165-1765(94)00618-C
Li, J., Xia, J., & Zajac, E. J. (2018). On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms. Strategic Management Journal, 39(1), 193–216. https://doi.org/10.1002/smj.2697
Liang, L. H. (2014, June). Analysis the new pattern of solar PV industry development in China and the enlightenment from Germany. In 2014 IEEE 9th Conference on Industrial Electronics and Applications (ICIEA) (pp. 550–555). Hangzhou, China. IEEE. https://doi.org/10.1109/ICIEA.2014.6931225
Liu, X. L., & White, S. (2001). Comparing innovation systems: A framework and application to China’s transitional context. Research Policy, 30(7), 1091–1114. https://doi.org/10.1016/S0048-7333(00)00132-3
Liu, X., Li, X., & Li, H. (2016). R&D subsidies and business R&D: Evidence from high-tech manufacturing firms in Jiangsu. China Economic Review, 41, 1–22. https://doi.org/10.1016/j.chieco.2016.08.003
Liu, X., Schwaag Serger, S., Tagscherer, U., & Chang, A. Y. (2017). Beyond catch-up – can a new innovation policy help China overcome the middle income trap? Science and Public Policy, 44(5), 656–669. https://doi.org/10.1093/scipol/scw092
Manso, G. (2011). Motivating Innovation. The Journal of Finance, 66(5), 1823–1860. https://doi.org/10.1111/j.1540-6261.2011.01688.x
Nelson, R. R. (1959). The simple economics of basic scientific research. Journal of Political Economy, 67(3), 297–306. https://doi.org/10.1086/258177
Perez-Sebastian, F. (2015). Market failure, government inefficiency, and optimal R&D policy. Economics Letters, 128, 43–47. https://doi.org/10.1016/j.econlet.2015.01.012
Rangan, S., Samii, R., & Van Wassenhove, L. N. (2006). Constructive partnerships: When alliances between private firms and public actors can enable creative strategies. Academy of Management Review, 31(3), 738–751. https://doi.org/10.5465/amr.2006.21318928
Tang, Y., Hu, X., Petti, C., & Thürer, M. (2019). Institutional incentives and pressures in Chinese manufacturing firms’ innovation. Management Decision, 58(5), 812–827. https://doi.org/10.1108/MD-08-2018-0933
Teachman, J. D. (1980). Analysis of population diversity: Measures of qualitative variation. Sociological Methods & Research, 8(3), 341–362. https://doi.org/10.1177/004912418000800305
Verona, G. (1999). A resource-based view of product development. Academy of Management Review, 24(1), 132–142. https://doi.org/10.5465/amr.1999.1580445
Wang, Y., Li, J., & Furman, J. L. (2017). Firm performance and state innovation funding: Evidence from China’s Innofund program. Research Policy, 46(6), 1142–1161. https://doi.org/10.1016/j.respol.2017.05.001
Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180. https://doi.org/10.1002/smj.4250050207
Xin, F., Zhang, J., Chen, Z., & Du, X. (2016). Do the types of subsidies and firms’ heterogeneity affect the effectiveness of public R&D subsidies? Evidence from China’s Innofund programme. Asian Journal of Technology Innovation, 24(3), 317–337. https://doi.org/10.1080/19761597.2016.1256705
Zhao, B., & Ziedonis, R. (2020). State governments as financiers of technology startups: Evidence from Michigan’s R&D loan program. Research Policy, 49(4), 103926. https://doi.org/10.1016/j.respol.2020.103926
Zheng, W., Singh, K., & Mitchell, W. (2015). Buffering and enabling: The impact of interlocking political ties on firm survival and sales growth. Strategic Management Journal, 36(11), 1615–1636. https://doi.org/10.1002/smj.2301
Zhou, J., Li, J., Jiao, H., Qiu, H., & Liu, Z. (2020). The more funding the better? The moderating role of knowledge stock on the effects of different government-funded research projects on firm innovation in Chinese cultural and creative industries. Technovation, 92–93, 102059. https://doi.org/10.1016/j.technovation.2018.11.002
Zuniga-Vicente, J. A., Alonso-Borrego, C., Forcadell, F. J., & Galan, J. I. (2014). Assessing the effect of public subsidies on firm R&D investment: A survey. Journal of Economic Surveys, 28(1), 36–67. https://doi.org/10.1111/j.1467-6419.2012.00738.x