More money, more honey? An examination of additionality of China’s government R&D subsidies

Miao Wang, Agyenim Boateng, Xiuping Hua

Research output: Journal PublicationArticlepeer-review

3 Citations (Scopus)


This study considers the interaction effects of government subsidies, financial constraints, and ownership structure on the firm’s net research & development (R&D) based on a sample of 3440 Chinese-listed firms during 2000-2019. Our results indicate that R&D subsidies reduce financial constraints irrespective of ownership type; however, the reduction appears more pronounced for private-owned enterprises (POEs) compared with state-owned enterprises (SOEs). Further analysis reveals that the impact of R&D subsidies on R&D investments depends on the interactive effect between financial constraint and ownership type. For financially constrained SOEs, subsidies spur net R&D investment whereas this is not the case for financially constrained POEs. We also examine the potential factors through which ownership types and financial constraints affect innovation input, namely, institutional development and industrial competition. Our evidence indicates that, in a more institutionally developed province, the effect of subsidies on net R&D input is negative for SOEs, but positive for POEs. In a more competitive industry, SOEs tend to face less agency risk and stronger monitoring, while POEs depend more on their financial slack. Our study challenges the ‘more money, more innovation investment’ story, suggesting that alleviating financial constraints does not necessarily stimulate more net R&D investments.

Original languageEnglish
Pages (from-to)1714-1739
Number of pages26
JournalEuropean Journal of Finance
Issue number17
Publication statusPublished Online - 26 Apr 2021


  • R&D subsidies
  • additionality
  • crowd-out effect
  • industry competition
  • institutional development

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)


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