The Effect Of Government Subsidies On R&D Investment Cyclicity In Enterprises

Innovation now is the embodiment of enterprises' core competitiveness and also the source for the survival of enterprises. That is why enterprises increasingly put innovative activities on an important position. And to study the investment of innovation will provide enterprises an important decision making basis of R&D investment. At present, our country is still in the late stage of the second stage of industrialization, but the financial development lags behind the development of the industry, and enterprises are facing stronger financing constraints. Aghion(2010) believes that when the market is perfect, the R&D investment is countercyclical thanks to the opportunity cost effect. But the market is not always perfect, when market is imperfect, R&D investment is procyclical because of the financing constraints. Is Chinese R&D investment procyclical or countercyclical? Whether enterprises'R&D investment has been influenced by financing constraints? How government subsidies affect the cyclicity of Enterprises' R&D Investment? The existing literatures lack of the corresponding researches. Based on these above:Firstly, based on the definition of related concepts, we selected China's manufacturing listed companies data of 2007-2014 and dealt with this data using HP filter method. We found that enterprises'R&D investment, most of the time, adapted to economic fluctuations, showing procyclical. And the difference between state-owned enterprises and non state-owned enterprises was also quite obvious. In order to study if the financing constraints led to the R&D investment procyclical and if government subsidies smoothed the R&D investment procyclical, we introduced enterprises' scale, interest cover ratio and external financing indicators to do the analysis. We found that state-owned enterprises' lower procyclical may be because of the lower financing constraints.Secondly, we established a mathematical model to analyze when there is a financing constraint, how government subsidies affect the cyclical of enterprises'R&D investment. Based on Aghion(2005)'s model of enterprise investment structure and economic fluctuation, we brought in government subsidies. Thanks to the financing constraints, enterprises'R&D investment turned from counter-cyclicality to pro-cyclicality.By theoretical derivation we found that government subsidies could weaken the pro-cyclicality of R&D investment, then change the enterprises' investment structure, and stimulate enterprises to increase investment in research and development.Finally, we made an empirical research of Chinese listed manufacturing enterprise data. Through short panel data of 2007-2014,7013 observations of 1580 enterprise, we found that our in country most enterprises which focus on research and development universally face the existence of financing constraints, and under the impact of financing constraints, enterprises'R & D investment generally was pro-cyclical. At the same time, according to the different characteristics of the enterprises and the national policy, the total sample was divided into two sub samples which are state holding enterprises and non state holding enterprises. The financing constraints of state-owned enterprises are found to be less than non-state-owned enterprises. Government subsidies can reduce enterprises'financing constraints and weaken enterprises'R&D investment pro-cyclicality. And the effect of government subsidies for non-state-owned enterprises was bigger than the state-owned enterprises. Therefore, the government can appropriately increase the subsidies to the non-state-owned enterprises. However, after we analyzed the intensity of government subsides, we found that the more subsides the better is not true. We need to find the proper range of government subsides.