The Effect Of R&D Subsidies On State-owned And Private Firms

Technology and innovation is the driving engine of economic development. Nowadays, with quick development of science and technology, only the firm which continuously invests in R&D activities will hold advantage in the fierce competed market. However, owing to spillover of R&D activities, firms tend to reduce or postpone R&D investment. In order to solve this problem, governments of many countries provide R&D subsidies to firms. These years, Chinese government also provides increasing R&D subsidies to firms. In order to examine the impact of R&D subsidies on firms, based on the game model, this paper makes comprehensive analysis on effect of R&D subsidies on firm internal R&D investment, firm external R&D investment, and firm performance.As Chinese economy is in the transition period, Chinese market is made up by two different main types of firms, which are stated-owned firms and private firms. They are so different in character and behavior in the R&D activities, so that we consider the firms’ ownership into the research of R&D subsidies, which enlarges the scope of traditional R&D studies. What’s more, different from the existing researches that only introduce an ideal firm as the state-owned firm which pursuing the goal of social welfare maximization into a mixed market model, this paper focuses on the practical differences in management and behavior between these two types of firms in Chinese market. After taking the principal-agent problem, social network and R&D efficiency influence in to consideration, this paper objectively analyzes how the firms’ownership influences the effectiveness of R&D subsidies on different types of firms.Empirical test is made by using the panel data of high-tech industry from1999to2008. The result is basically in line with the theoretical hypothesis, and they show that, in China, the government R&D subsidies really have three main impacts on firms, including triggering more firm internal R&D investment, attracting more R&D investment from outside investors, and finally improving the performance of these firms. At the same time. Firms’ownership influences the degree of the positive impact of R&D subsidies on the firms. In detail, compared to private firms, stated owned firms demonstrate less positive impact in the aspect of attracting external investment and improving performance when receiving same amount of R&D subsidies as private firms.Based on the theoretical and empirical analysis, meaningful conclusions and practical recommendations are put forward. They provide useful ideas for triggering firms’ R&D activities, increasing the industry’s especially the technology-intensive industry’s innovation competitiveness, and promoting the development of Chinese economy.