Can Government Subsidies Increase R&D Expenditure Of Finance Constrained Firms

With the accelerating process of globalization, technological innovation capability has become an important factor to measure the competitiveness of countries and enterprises, and can significantly promote economic and social development. However, the "2013 National Science and Technology Funds Bulletin" jointly issued by the National Bureau of Statistics, Science and Technology, Ministry of Finance shows that even the high-tech industries which demand for technological innovation highly, the R&D intensity did not exceed 2%,the highest value reached only 1.69%, there is a certain gap with developed countries’average level of 3%. As the microcosmic body of market activity, the role of enterprises’technology innovation activities to enhance the country’s overall innovation capacity can not be ignored, however the sources of funding illustrated in the bulletin shows that the shortage of funds and the difficulty in financing is one of the main reasons constraints corporate R&D investment level. The increasing trend of government financial allocation since the eighties suggests that government subsidy policy is an important tool to solve problems in corporate R&D funding. Therefore, the main purpose of this paper is to examine whether the government subsidy policy can effectively alleviate the negative impact of the shortage of funds and financing constraints on R&D investment, and improving research and development level of enterprises and even the society as a whole.Previous studies mostly started from two aspects of internal governance and external institutional environment to analysis methods of easing financing constraints. This article starts from the actual situation of China’s current R&D investment and existing research, around the main factor of funding shortages and difficulties in financing which suppresses the R&D investment, from the point of view of governmental functions to explore the influencing mechanism of subsidies to finance constrained firms’ R&D level. It has important implications for government to regulate and improve the subsidy policies, for financial institutions to rationalize corporate financing conditions and to perfect accounting standards and other corporate information disclosure provisions.This paper’s research content is as follows:Firstly, this paper expounds the research background and significance, and raise the question that if government subsidies can increase the R&D level of financing constraints enterprise based on this. Secondly, based on previous research results, sorting out the relations between financing restriction, enterprise R&D investment and government subsidies, then pointing out this paper’s expansion to previous research. Subsequently, based on the supply and demand model of research and development, comparatively analyze the inhibitory influence from financing constraints to corporate R&D investment, and think that the government subsidies may alleviate the inhibitory effect through two ways:on the one hand, government subsidies can directly increase the available funds of enterprises, reduce the enterprise’s external financing needs. On the other hand, government subsidies may reflect information about the future direction of national industry development and policy support and enterprise R&D activities’ expected earnings outlook through selecting the subsidy objects reasonably, therefore may change the external investors’ investment decisions, and increase the fund that firms obtained. Finally, based on data from 237 listed companies of high technology industry in our country, using panel data econometric analysis method to prove the above mechanisms.The main conclusions gained are as follows:Firstly, when cash-strapped companies suffer from financing constraints, they will reduce the expenditure on research and development. R&D level of enterprise will be decreased with the increasing degree of financing constraints. Secondly, the government subsidies can reduce the negative effect of financing constraints on corporate R&D investment, and promote the financing constraint enterprises’R&D level. At present, this regulating action in China’s high technology industry is mainly through increasing available funds of enterprises directly, and reducing enterprise’ external financing need to work, the role to attract outside investment by screening measures has not appeared. Thirdly, the effect of government subsidies has obvious difference between enterprises with different property rights, the influence on private enterprise is more apparently. Therefore, in order to bring the role of the government in improving the enterprise financing difficulties and promoting enterprises’ R&D level into full play, this paper suggested from the following two aspects:First, eliminating subsidies’ "ownership discrimination" phenomenon, increasing subsidies for private enterprises in order to improve the efficiency of government funds. Second, perfecting government subsidies object selection mechanism and improving the allowance value, make the limited amount of subsidies play a role like "move thousand cattle with four tales".Compared with previous research, this paper has the following several contributions:first, using demand and supply model analysis the impact mechanism of financing constraints on corporate R&D input comparatively, and expounds the government subsidies’ adjustment mechanism of the relation between them. Secondly, the existing literature mostly begin from the internal governance structure and external financial environment to seek ways to solve the financing constraints, this article start from the government subsidy policy which is an important mean of state macro-control and resource allocation to analyze its impact on the relationship between financing constraints and enterprise R&D. Finally, it is concluded that the government subsidies can increase financing constraints enterprise’s R&D spending. At the same time, this article also has some points to improve:first of all, the data of government subsidies and R&D used in this paper is obtained by consulting the annual report of listed companies manually, due to a number of companies don’t subdivide the purpose of the subsidy and the stages of the R&D activities, so the aggregate data this article selected limits the further study of this subject. Secondly, in this paper, the empirical analysis chooses the listed company of high technology industry as research object, because of their research and development activities are more intensively, the next step can make out a more general conclusion by using all non-financial listed companies or unlisted companies.