Research On The Impact Of Government Direct Subsidy On Firm R&D Investment Based On The Perspective Of Financing Constraint

The successful R&D investment strategy can help corporations to develop their corecompetitiveness and to achieve their sustainable competitive advantage. However, R&Dinvestment is far away from enough for Chinese corporations’ technological innovation.There are many factors limiting Chinese corporations’ R&D investment, in which the key oneis the financing constraint. Corporations obtain R&D investment funds from two ways, whichare government subsidy and money raised from capital market by corporation. Thegovernment subsidy concludes fiscal subsidy and non-fiscal subsidy, the former is directfinancial aid to corporations. By supporting financing corporations’ R&D investment,government can help them to reduce the R&D cost and research risk, to lead corporations’R&D to the right direction. The effect between government subsidy and corporationself-raising is complement or substitution, has been researched by many scholars. Financingconstraint affects not only corporations’ R&D investment, but also the relationship betweengovernment subsidy and corporation R&D investment.The research methods of this paper are theoretical analysis and empirical analysis. Fromthe point of financing constraint, we discuss how the Chinese government direct subsidyaffect corporations’ R&D investment does. The theoretical analysis based on asymmetricinformation theory, effective market theory and agency cost theory. We make4hypotheses,which are “financing constraints” hypothesis,“ownership” hypothesis,“industry” hypothesisand “capital intensive” hypothesis. The empirical analysis is based on the data sampleincluding152listed corporations on the GEM board from2010to2012. It makes severalconclusions as follow. First, the government direct subsidy has complement effect oncorporations’ R&D investment under different financing constraints. However, thecomplement effect under weak financing constraint is more powerful than that under strongfinancing constraint. Second, comparing to the state owned corporations, the governmentdirect subsidy has better complement effect on the non-state owned corporations under weakfinancing constraint. Third, in the environment of strong financing constraint, the complementeffect in manufacturing corporations is better than that in non-manufacturing corporations. Lastly, the government direct subsidy has complement effect on capital intensive corporations,has substitution effect on labor intensive corporations.Therefore, the government can help corporations to enhance their innovation ability byimproving financing environment and increasing government subsidy to non-stated ownedand non-manufacturing corporations.