Study Signaling Financing Mechanism Of R&D Subsidy

Design of R&D subsidy policy is to stimulate firm's investments on R&D activities by cutting down firm's expectation for risks of R&D activities and correct the market failure where social private R&D investment is under the optimal level,which also is the traditional theoretical basis for R&D subsidy policy designing.However,booming of modern financial markets make more and more firm's R&D activities are financed by external financiers and as a rational result,firms face more and more severe financing constraints for R&D activities.Under financing constraints,traditional theory for R&D subsidy policy designing could not fit the potential incentive effect of R&D subsidy completely.Given the financing constraints of firms for R&D activities,we insist that R&D subsidy provide a major certifying role for firm's external financing;the channels through which R&D subsidy promote firm's external finance are double and the incentive effects of R&D subsidy generate most through the “non-initiative” financing channel.The certifying role for firms' external financing root in the market investors' trust on potential double-government credits of R&D subsidy.In the competing selective allocating process of R&D subsidy,government will screen potential candidates with good innovative performance and profitable R&D plans under social pressure and considering efficiency of R&D subsidy.Hence,professional technological experts will be grouped to assess the applicants,which will implies a certifying signal for firm's innovative reputation and capacity if a firm obtain government R&D subsidy.Another positive signal for subsidized firms is that they have a strong incentive to complete innovative projects as the receipts of R&D subsidy are evaluated based on innovative performance at the end of subsidized period.In the certifying process,the free riders are external financers,who can share the invisible technological information of firm's R&D activities,but without affording the cost to assess firm's R&D.through the free technological information sharing mechanism for financiers,R&D subsidy will promote more finance for firm's R&D activities.Considering the introducing role of R&D subsidy for market investors,first,we build theoretical model for external financing role of R&D subsidy and the incentive mechanism.Moreover,we manually collect the R&D subsidies of 1831 China's listed innovative firms between 2007-2014 and specify quasi-natural experiment based on one-dimensional and two-dimensional by employing PSM to solve the sample selection bias and potential “survival of the fittest” bias,which well identify the signaling mechanism through which R&D subsidy provide external financing effect for firm's R&D financing,what is an innovative contribution for studies on certifying role of R&D subsidies.Second,based on the signaling mechanism of R&D subsidy,we further inspect the relations between R&D subsidy signaling the firm's innovative capacity and political connection signaling the relation to government and which of these two governmental signals is more important for market investors.The inspection for the relations between these two governmental signals not only expand the research field on impact of political connection on firm's financing,but also provide new idea for policymakers to explore deeply the reform of state-own firms and promotion for innovations of state-own firms.Third and more important,based on the signaling mechanism of R&D subsidy,we put forward the “Non-Initiative” External Stimulating Mechanism for R&D subsidy and provide evidence of China for the NIESM mechanism,which fit explain the significant stimulating effect of R&D subsidy for firm's R&D investment when a firm have strong R&D investing will but without enough financing and the NIESM mechanism compensate stimulating mechanism of R&D subsidy from external financing view.In an overall opinion,the certifying role for financing of R&D subsidy and the exploring for signaling of R&D subsidy and political connection find the new signals for firm's credit from government policy and provide the detailed theory and plenty empirical evidence for the signaling mechanism,exploring the relation between new R&D subsidy and traditional political connection.NIESM mechanism compensate the internal stimulating mechanism on explaining incentive effect of R&D subsidy under the context where IPR is commonly established,financing market is in transition and information disclosure is not incomplete.From the view of “Non-Initiative” beyond initiatives of R&D subsidy designing,NIESM prove deeper the importance of R&D subsidy for firm's R&D activities through certifying role but not the subsidy amount and have important theoretical guiding meaning and practical reference value for China's new supplying on subsidy amount,institutionalism and information.