Government R&D Support, Financial Constraints And Enterprise Value

As China’s economic strength takes off, the government is increasingly focusing on the companies’ Technology Innovation and Research and Development(R&D) support. Meanwhile, financing constraints are always impeding the development of China’s Small and Medium Enterprises(SMEs), how to crack the problem of financing constraints deserve more attention for government departments, businessmen and academic scholars. Based on the above discussed background, this study investigates the status of the government SMEs supporting resources allocation and the efficiency of its R&D support with different types and duration. That is, whom are chosen for more R&D support? In what ways to be supported? How about the efficiency of the support?First, this research collects relevant literature and analyzes the necessity of go vernment support for business R&D policies on the basis of the Stakeholder Theory, the Theory of National Innovation System and Market Failure Theory. Then, the study illustrates different types of R&D support on the background of government supporting system, and documents the relationship between the SMEs characteristics and external factors and the access to government R&D supporting resources. Finally, the dissertation empirically discusses the validity of the government R&D supporting policy based on Signaling Theory and Corporate Governance Theory from a financial perspective.This study takes the financial data 2007-2013 of the listed companies(Shenzhen SME Board and GEM) in the technology industry as sample, both Normative and Empirical analysis are implemented to explore the characteristics of the C hinese government support ing resources allocation, to examine the impact of government R&D supportive policies on financing constraints and enterprise value for the SMEs. To further investigate the differences between the types and duration of government R&D supporting policies, the different Signal and Corporate Governance Effects for the two policies are also taken into account in this study.In terms of the empirical research design, Correlation Analysis, Univariate Analys is and Regression Analysis are conducted in this dissertation. Considering the endogeneity problem that is probably caused by the sample selection bias(from government R&D supporting distribution) or the causality between the dependent and independent variables, to alleviate or eliminate the endogeneity problem, a battery of tests are also established, including the Heckman selection model, the two-stage instrumental variable regression model, propensity score matching methodology and so on. Using multiple measures of key variables and conducting several robustness checks, similar inferences are obtained, indicating the results are quite reliable.From the corporate finance perspective, this study discusses the determinants and efficiency of the government supporting resources configuration, including the following main conclusions:Firstly, the factors impact the companies receiving government R&D supporting resources, the study finds that:1.Corporate R&D intensity is a key factor that affects its access to government R&D supporting resources, R&D intensity significantly positively correlates with the intensity of the two types of government R&D support, which means that the government prefers to choose firms with higher level of corporate R&D investment when allocating the supporting resources.2.To a certain extent, the firms with political connections are entitled to more direct government R&D support. By contrast, indirect government R&D support has no significant positive relationship with political connections, which may be attribute to the wider coverage of indirect business tax incentives, all the firms meet the specific criteria will be eligible for the support.3.In contrast, indirect government R&D support intensity(tendency) holds significantly positive correlation with the amount of corporate tax, enterprise size, operational performance and macroeconomic conditions in the registered place, while direct government support for R&D intensity(tendency) positively correlates with these factors but insignificant, indicating that when the government sector has a better financial situation, it would be more inclined to return certain forms of economic resources to the enterprises who contribute more to local economic development, because these enterprises are with better financial performance and more tax.Secondly, the impact of government R&D support on the SMEs financing constraints is also examined in this research, empirical evidences illustrate that:1.To some extent, the government R&D support for SMEs can effectively alleviate their financial constraints, which convinces the Corporate Governance and Signaling Effects of government R&D support.2.Direct R&D support on the SMEs can ease SMEs financing constraints, but indirect government R&D support does not significantly reduce their financing constraints.3.Compared to short-term government R&D support, long-term government R&D support more significantly reduces the extent of corporate financing constraints.In addition, the research design also includes other important control variables and the findings are as follows, the extent of SMEs financing constraints decrease with the level of cash holdings, firm size, operating performance, the proportion of institutional investors holding; on the contrary, financing constraints index is significantly positively correlated with leverage ratio and investment opportunity, respectively.Finally, this research investigates the impact of government R&D support on the High-tech SEMs market value, the main conclusions are as follow:1.The Government R&D support can significantly improve the market value of High-tech SMEs, this evidence confirms the Governance and S ignal Effects of R&D support. Moreover, empirical evidences further show that the positive impact of government R&D support on corporate value is more pronounced for firms with higher degree of financing constraints.2.Both direct and indirect government R&D support can significantly improve the value of SMEs, but the magnitude of direct R&D support is larger than that of the indirect in terms of improving enterprise value.3.The findings show that the regression coefficients with smaller magnitude for the firms receiving short-term government R&D support relative to the long-term greatly-supported firms.The research design further argues that R&D investment levels have a positive relationship with firm value and show that firm value also increases significantly with the corporate financial performance, revenue growth, cash flow, the proportion of institutional ownership and ownership concentration.The research contributes to the Accounting and Finance literature in several related ways:First, this study provides incremental empirical evidences to the related theory. To examine the procedures and efficiency of the government resources configuration, the research constructs a compounding empirical framework, which covers a variety of factors including enterprise R&D, political connections, tax contributions, financing constraints and enterprise value. In this study, for a large number of existing literature suggests there may be rent-seeking behavior in the process of allocation of government resources, the manually collected unique data of government R&D support on SMEs is employed and the relationship between the enterprise features and government R&D support selections is mainly discussed, which enriches the empirical research related to government-enterprise relations in transition economies(nations). According to the existing literature, few scholars pay attention to the impact of government R&D support on enterprise financing behavior. Combined with the financing constraints of SMEs, this study attempts to document the effectiveness of government resources allocation from financing constraints and enterprise value perspective. Therefore, the findings in this study will provides incremental empirical evidence and analysis path for examining the Signal Theory, Corporate Governance Theory.Second, this study sheds light on the expanding research perspective. The existing literature, related to the government R&D supporting resources allocation, mainly pays attention to investigating whether government R&D subsidies promote firms’ R&D investment or innovation output, but rarely provides empirical evidence from the financial perspective. The High-tech SMEs with greater government support should obtain more economic resources and have innovative projects of higher quality, releasing good news to the capital market. Moreover, the government will conduct a rigorous examination mechanism for evaluating the progress of enterprises’ R&D activities and related outcomes.Theoretically, government R&D support can apparently generate external governance mechanisms. What’s more, due to the diversity of government supporting policies on High-tech SMEs, and the vast majority of relevant research does not also take into account the changed effects of different types of government R&D supporting instruments. Accordingly, this study attempts to expand relevant research in the field of Corporate Governance and Signal Transmission and to inspect the different impacts of the direct and indirect R&D support, long-term and short-term R&D support on the corporate finance.Lastly, the conclusions from this research ease the relevant academic controversy. The role of government for entreprise(―Supporting Hand‖ or ―Grabbing Hand‖) has been much academic debate. This study attempts to mainly discuss the government’s role in easing financing constraints and enhanc ing enterprise value for the High-tech SMEs. The findings in this study, on the whole, suggest that the government’s ―Supporting Hand‖ is effective, but findings show significant different effects of the different types and duration of R&D supporting policies on corporate finance. By implementing the advancing academic empirical methodologies in the research design(Heckman Selection Model, Dynamic Panel GMM Model and Propensity Score Matching Method), to alleviate or eliminate the endogeneity problem, similar inferences are obtained, indicating the results are quite reliable. To a great extent, the findings alleviate current academic controversy in related research.