Government Funding, Cash Holdings And Firm R&D Smoothing

With economic globalization and intensified international competition,innovation as an important way to increase the comprehensive national strength has been recognized by the world,China has place among the ranks of the great powers of innovation.In the critical patch of economic restructuring,innovation-driven development strategy has become the only way out of the current wave of competition.Research and development is source of technological innovation,and the enterprise is the main body of innovation,ongoing research and innovation activities is important and fundamental for enterprises to create core values and maintain a competitive advantage.R&D as a special form of investment,to compare with traditional investment activities,has its characteristics: large-scale investment,long development cycles,high uncertainty,high risk of failure,as well as a huge external adjustment cost.It has been an urgent problem to maintain the stabilization and steadiness of R&D activities for a long time,that is,research and development smoothing problem.Meanwhile,in the imperfect capital market,given the spillover effects of R&D investment and market failure,the government also plays a very important role in research and innovation.Academically,discussion on government-funded R&D investment substantially follows the framework of inductive effect and crowding out effect,and failed in depth research in the stabilization and steadiness of R&D activities,and lack analysis of the continuous R&D activities of enterprises.;on the other hand,in recent years,although many scholars have launched research in R&D smoothing and explored the smooth mechanism from the perspective of cash holdings,working capital and asset sales,but it still lacks of mature discussion on government fund,the critical R&D financing resource.This dissertation sought to break through the current analytical framework,raising the government funding as an important regulator to current R&D smoothing mechanism of cash holdings.This dissertation starts from inherent characteristics of R&D,and discusses the following two issues from the perspective of R&D smoothing with views of financing constraints theory and information asymmetry theory.Firstly,while facing different financing constraints,if cashholdings can produce smooth effect on corporate R&D investment.Learn from previous studies,combined with A-share high-tech listed company samples,this paper will examine the existence of cash holdings smoothing effect in the dynamic R&D model.Secondly,how government funding impacts the R&D smoothing effect of cash holdings.This paper discusses and builds dynamic game theory model for detailed discussion of function between government and enterprises,and strives to portray the role of government in the current R&D smoothing mechanism of cash holdings.Combined with dynamic panel data,it will carry out integrated discussion on relationship among government fund,cash holdings and corporate R&D investment.The main conclusions are as follows:(1)Under the information symmetry situation,the government funding can be arranged according to the actual needs of the enterprises because of the transparency of information between enterprises and the government.The improvement of government funding will improve the R&D smoothing and improve the long-term performance of enterprises.In the case of information asymmetry,the government can improve the feasibility of discriminating the types of enterprises by enlarging the funding differences of different types of enterprises and reduce the possibility of "non-R&D smoothing demand" enterprises obtaining government subsidy through camouflage;when the state-Government cost-saving caused by the rent-seeking behavior is greater than the loss of innovation value,the local government will have the motivation to maintain this kind of market segmentation under the protection of the relationship,otherwise,the government will gradually adjust the relationship management;further,enterprises facing strong financial constraints can use their own resources and government resources to carry out R&D smoothing management,social benefits will be correspondingly improved.(2)Corporate cash holdings have a smoothing effect on their R&D investments.As R&D activities have the characteristics of huge adjustment costs,when the traditional internal and external financing channels for R&D activities is difficult to provide sustained and stable financial support,the cash holdings as a "capital buffer pool",can effectively protect long-term R&D Financing needs.The empirical results of this paper show that cash holdings have a negative relationship with R&D investment,that is,cash holdings can be used as funds for future R&D investment when R&D funds are abundant,timely release of R&D funds.While this smoothing effect is more pronounced in the context of strong financing constraints.(3)Under the condition of strong financing constraint,the government funding has a direct negative regulation effect on the R&D smoothing effect of cash holdings,that is,the higher the level of government funding,the less obvious the R&D smoothing effect of cash holdings.While in the weak financing constraint environment,the government funding has negative adjustment effect on the R&D smoothing effect in the R&D expenditure capitalization enterprises and the private enterprises,and has positive adjustment effect in the R&D expenditure enterprises and State-owned enterprises.(4)Government funding has indirect negative regulation effect on R&D smoothing effect of corporate cash holdings,that is,government funding can adjust the R&D smoothing effect of cash holdings by alleviating financing constraints,through promoting equity,debt financing and improving enterprise cash flow.And this effect is more pronounced in the context of strong financing constraintsThe main contribution of this dissertation is:Firstly,this paper constructs a new dynamic analysis framework about the relationship among government funding,cash holdings and firm R&D from the perspective of "R&D smoothing".Given the current government-funded academic research generally follows the models of "induce-out" paradigm,this article re-examines the relationship between government funding,cash holdings and firm R&D from the perspective of “R&D smoothing”.On the other hand,in recent years,research on R&D smoothing rises in corporate finance,which focuses on the study of the mechanism of cash holdings and other avaiable efforts.However,these efforts did not involve government funding,which acts as an important factor in R&D financing.This paper will study the government funding the introduction of R&D smoothing mechanism and its effect on R&D smoothing,broaden the research perspective and research ideas of R&D smoothing.Secondly,this study sets revenue functions between enterprises and government,concretely analyses the gaming process between the two sides in information asymmetric scenario through dynamic models,and carries out a more comprehensive discussion on the motivation for government funding and corporate R&D smoothing,makes up the theory blank for the relation between government funding and R&D smoothing.Finally,this paper uses theoretical and empirical ways to confirm the government funding not an independent way smoothing R&D,but a modulation based on other mechanism;and uses China high-tech listed companies as research samples,combined with the different financing constraint environment,discusses the internal mechanism of government funding,cash holdings and R&D smoothing from the direct and indirect views.The study not only enrich the empirical results of the research field of R&D smoothing,and deepen the understanding of relationship theory between government funing and corporate R&D.