R&D subsidy and corporate innovation: an integrated view of resource allocation and resource utilisation

Abstract

This study develops an integrated framework taking both resource allocation and utilisation into account to argue that R&D subsidy effectiveness depends on both the way subsidy is allocated by governments and utilised by firms. When subsidy is allocated to a firm based on its technological capability, the firm is more likely to utilise subsidy for its intended use (i.e. to produce additional R&D investment) and transform such investment into more innovation output. In contrast, when subsidy is allocated to a firm based on its political connection, the firm is less likely to utilise subsidy for its intended use and produce less innovation output. The allocation and utilisation effects vary across provinces with different levels of government intervention. We find empirical support for our hypotheses by using a sample of Chinese privately controlled listed firms from 2010 to 2016. This study contributes to R&D subsidy evaluation studies and resource management literature.