To explore the relationship between the forms of innovative subsidies and corporate innovation performance and study the policy’s influence factors, we have compared the two forms of innovative subsidies for government subsidies and R&D tax super-deduction policy, by conducting an empirical study on A-share listed companies from 2006 to 2016 based on the propensity score matching and difference-in-difference method. Results indicate that innovation performance is negatively affected by the direct government subsidies, which is especially significant for non-state-owned enterprises. While the R&D tax super-deduction policy is significantly improving the innovation performance of the enterprise, whether for state-owned or non-state-owned enterprises, the positive effect is equally significant.
China adheres to science and technology innovation as the first driving force for development and strives to take the lead in technological innovation. However, compared with conventional investment in production and operation, enterprises engaged in technological innovation have the characteristics of high cost, high risk, long cycle and positive externalities. Private investors have the aversion to risk and the preference for stable development, which leads to the phenomenon of “market failure” of insufficient spontaneous supply of enterprises’ technological innovation activities. The government directly or indirectly supports enterprise R&D activities, and encourages enterprise innovation, which is in line with the definition of the government’s functions and the law of development under market economy conditions.
At present, the two main ways that Chinese government encourages enterprises to innovate are government subsidies and the tax relief policies. In recent years, China’s government subsidies have increased year by year. The data show that the expenditure on new product development reached 1.18 trillion yuan in 2016, an increase of 71.01% compared with 0.69 trillion yuan in 20111. Government subsidies are considered to be strong support for R&D activities, but there are serious problems such as adverse selection beforehand and moral hazard afterwards [
Scholars at home and abroad have done a lot of research on different ways of innovation subsidies. The following main problems exist in the innovative activities: first, the externalities and high risks of R&D activities are the fundamental causes of market failure. Second, due to the principal-agent problem, managers prefer to invest in short-term projects with predictable returns rather than R&D projects. Appropriate government intervention can effectively solve these problems [
Some scholars believe that government subsidies are short-term and moderate. On the one hand, although innovation subsidies have a positive short-term effect on human capital investment, most enterprises lack a positive performance effect in the long run [
In summary, the existing research mainly discusses the effect of innovation subsidies on R&D investment, and seldom evaluates the intuitive policy effect of innovation performance. Besides, this paper is a pioneering comparative study of R&D tax super-deduction Policy and government direct subsidies. PSM-DID method is used to measure the policy effect of the two subsidy modes from innovation performance, which solve the problem effectively of sample selection errors and endogenous problems, and the estimated results are more scientific. Furthermore, this paper studies the impact of nature of enterprise and regional heterogeneity on policy effectiveness, which is great significance to enterprise management and innovation policy implementation.
Based on the sample of A-share listed companies in China from 2006 to 2016, this paper uses the propensity score matching method (PSM) and the difference-in-difference method (DID) to measure the incentive effect of subsidy on enterprise innovation from the perspectives of direct subsidy (government subsidies) and indirect subsidy (R&D tax super-deduction Policy). The results show that: 1) Government subsidies have a certain hindrance effect on innovation performance of enterprises. The R&D expense plus deduction policy has a significant positive stimulus to the innovation performance of enterprises. 2) Considering the heterogeneity of property rights, government subsidies significantly reduce the innovation performance of non-state-owned enterprises, while the Deduction Policy significantly improves the innovation performance of non-state-owned enterprises.
The paper proceeds as follows. Section 2 describes the sample, variables measurement and research design. Section 3 presents the empirical results. Section 4 concludes.
This study uses data collected by author from WIND and CSMAR. Selecting A-share listed companies for which government subsidies information is available from 2006 to 2016 as research initial samples. And the samples of financial industry, ST and PT, and missing main variables such as R&D costs and patent applications were deleted. In order to delete the observational values which have obvious statistical errors and don’t conform to the accounting standards, we winsorize main continuous variables in 1% in this paper. Besides, the methods of identifying the beneficiaries of R&D tax super-deduction Policy are as follows: because the applicable conditions of R&D tax super-deduction policy are that the R&D activities of enterprises must meet the following three conditions simultaneously: innovative, value, and conform to the “Key State Supported High-tech Areas”. Therefore, this paper chooses high-tech enterprises as the beneficiaries of the R&D tax super-deduction Policy.
Following prior literature, scholars often use the amount of patent applications and patent authorization to measure innovation performance. The Patent Law of the People’s Republic of China stipulates that patents can be subdivided into invention patents, utility model patents and design patents. Compared with invention patents, the other two types of patents have low technical requirements, and invention patents can better represent the innovation ability of enterprises [
SUB is a dummy variable of government direct subsidies. If an enterprise receives a government subsidy, the SUB value is 1, otherwise 0. POL is the dummy variable of R&D expense plus deduction policy time, 2008 is the time to implement the policy of R&D tax super-deduction, so before 2008, the value of POL is 0, in 2008 and beyond, the value of POL is 1. GRO is a grouping variable of R&D tax super-deduction Policy. In 2008, the GRO value of the high-tech enterprise qualifications sample is 1, otherwise 0. The cross-term coefficient measures the impact of the R&D tax super-deduction Policy on the innovation performance of the enterprise.
This paper controls the relevant variables such as enterprise size (ASSET), enterprise income tax rate (TAXR), debt level (LEV), enterprise growth (GROWTH), enterprise age (AGE), enterprise capital liquidity (CASH), etc. The detailed variable definitions are shown in
This paper mainly studies the incentive effect of innovation subsidies on innovation performance from two perspectives of government subsidies policy and R&D tax super-deduction Policy. On the one hand, the beneficiaries of innovation subsidies are mainly concentrated in the high-tech industries supported by the national key development. Actually, whether enterprises benefit from innovation subsidy policy is a non-random event because of the influence of the will of the government. On the other hand, when estimating the additional incentive effect of innovation subsidies, it is necessary to separate which parts of innovation performance are generated by innovation subsidies rather than by the original decision-making of the enterprise itself. Therefore, this paper chooses the Propensity Score Matching (PSM) method which can effectively solve the sample selection bias. The basic idea is to construct the control group with the closest characteristics to the beneficiary sample based on the enterprises without innovation subsidies, to ensure that the covariates of the treatment group and the control group samples are as similar as possible except this factor of receiving innovation subsidies. The effect of innovation subsidies on innovation performance can be expressed as follows:
E ( Y i ) = E ( Y i Y | S = 1 ) − E ( Y i N | S = 1 ) .
Variables | symbols | Descriptions |
---|---|---|
Dependent Variable | IPATENT | The natural logarithm is taken after the number of patent applications for inventions of enterprises is added to 1 |
Independent Variables | SUB | 1 = Get Government Subsidies, 0 = No government subsidies |
GRO | Grouping variables of R&D tax super-deduction Policy | |
POL | 1 = Treatment group, 0 = Control group | |
Control Variables | ASSET | Logarithm of total assets of a company |
TAXR | Enterprise income tax rate | |
LEV | Asset-liability ratio | |
GROWTH | Income growth rate | |
AGE | Sample year minus year of establishment plus 1 | |
CASH | Net operating cash flow divided by final total assets |
where S is the group variable whether the enterprise receives innovation subsidies, if the enterprise is a subsidized enterprise, S equals 1. Y i Y is the innovation performance of company i, and Y i N indicates the subsidized companies’ innovation performance when supposed they did not receive the subsidies, E ( Y i ) can be approximated as the additional innovation performance brought about by innovation subsidies, but Y i N is a unobservable variables. To solve this problem, we select a set of variables and use the propensity score matching method to transform these variables into one-dimensional variables to synthesize a score. According to the propensity score, we construct a control group that matches the subsidized enterprises in the treatment group.
When discussing the incentive effect of the R&D tax super-deduction Policy on innovation performance, this paper further evaluates the policy effect by using difference-in-difference method on the basis of propensity score matching. Since the promulgation of the “Measures for the Management of the Recognition of High-tech Enterprises” in 2008, the recognition of high-tech enterprises has been strictly filed for examination and approval, and the recognition work has only begun to standardize, therefore setting 2008 as the dividing point of the dummy variable of policy time. Moreover, the time for enterprises to be identified as high-tech enterprises is different. In order to ensure the adequacy of samples, the samples that were continuously recognized as high-tech enterprises from 2008 were selected as the treatment group. To estimate the effect of policy implementation, we set the following DID model:
IPATENT i t = β 0 + β 1 GRO i × POL t + λ ∑ CONTROL i t − 1 + ∑ Industry + ∑ Year + ε i t
where IPATENT i t is the innovation performance for company i at the end of period t. The coefficient β 1 reflects the effect of R&D tax super-deduction Policy on enterprise innovation. Because of the lag of R&D activities, the control variables in this paper are dealt with in a lag period.
From
Variables | Obs | Mean | Sd | Min | Max |
---|---|---|---|---|---|
IPATENT | 11714 | 1.7016 | 1.2290 | 0 | 5.6240 |
SUB | 21494 | 0.7495 | 0.4333 | 0 | 1 |
TAXR | 20261 | 17.6315 | 5.8014 | 0 | 33 |
LEV | 16199 | 0.4126 | 0.2084 | 0.0445 | 0.8919 |
CASH | 16199 | 0.0455 | 0.0701 | −0.1541 | 0.2463 |
AGE | 21494 | 17.3299 | 5.0344 | 7 | 29 |
GROWTH | 14665 | 0.1917 | 0.4135 | −0.4620 | 2.6803 |
ASSET | 16199 | 21.8292 | 1.2503 | 19.5926 | 25.8612 |
IPATENT | 11714 | 1.7016 | 1.2290 | 0 | 5.6240 |
a) Retain four-digit significant digits after decimal points of some data.
Firstly, the PSM method is used to select the treatment group and the control group for innovation subsidies. As the main reference factors for enterprises to obtain innovation subsidies are enterprise income tax rate, debt level, enterprise growth, enterprise age, enterprise capital liquidity, enterprise scale, etc. the above variables are selected as the characteristic variables of the enterprise to calculate the score of the covariate by regression. Scores for the treatment group enterprises to find matching control enterprises.
In theory, after the implementation of the R&D tax super-deduction Policy, it reduces the R&D cost of enterprises, releases positive signals to the market, improves the financing level of enterprises, and thus improves the R&D investment of enterprises. Increasing R&D investment will improve R&D efficiency, reduce R&D risks, and then improve innovation performance.
Variable | Sample | Treated | Controls | Difference | S.E. | T-stat |
---|---|---|---|---|---|---|
IPATENT | Unmatched | 1.7853 | 1.4427 | 0.3425 | 0.0309 | 11.07*** |
Matched | 1.7853 | 1.8654 | −0.0802 | 0.0550 | −1.46 |
a) Retain four-digit significant digits after decimal points of some data. b) *p < 0.10, **p < 0.05, ***p < 0.01.
Coefficients and Standard Errors | ||||
---|---|---|---|---|
(1) | (2) | (3) | (4) | |
POL × GRO | 0.423*** | 0.305*** | 0.441*** | 0.265*** |
(0.028) | (0.063) | (0.030) | (0.046) | |
TAXR | −0.037*** | −0.027*** | ||
(0.003) | (0.004) | |||
LEV | −0.126 | −0.025 | ||
(0.084) | (0.109) | |||
GROWTH | 0.067 | 0.010 | ||
(0.041) | (0.038) | |||
CASH | 0.942*** | 1.409*** | ||
(0.208) | (0.282) | |||
AGE | −0.003 | −0.002 | ||
(0.003) | (0.004) | |||
ASSET | 0.458*** | 0.498*** | ||
(0.013) | (0.030) | |||
Industry | Y | Y | ||
Year | Y | Y | ||
Province | Y | Y | ||
N | 8124 | 8119 | 6837 | 6836 |
R2 | 0.028 | 0.173 | 0.205 | 0.320 |
a) Standard errors in parentheses, *p < 0.10, **p < 0.05, *** p < 0.01. b) “Y” stands for fixed effect.
tax super-deduction Policy. Column (1) and (2) are the basic regression, without adding control variables, and column (2) fixed effects of industries, years and regions. Control variables are added in column (3) and (4), Regression results show: whether related variables are controlled, the significance and the direction of symbols of cross-term coefficients has not been changed, which are significantly positive at the 1% significant level. That’s to say, after the implementation of the R&D tax super-deduction Policy in 2008, the innovation performance of enterprises affected by the policy has been significantly improved. Therefore, this paper concludes that the effect of R&D tax super-deduction Policy on enterprise innovation performance is positive.
Based on a preliminary study of the incentive effect of government direct subsidies and R&D tax super-deduction Policy on enterprise innovation performance, the paper also explores the effect of heterogeneous factors on the implementation of innovation subsidies policy.
Due to the differences of leadership promotion mechanism, management mode and age structure of employees between state-owned enterprises and non-state-owned enterprises, innovation subsidies may have different effects on enterprises with different ownership nature. In order to investigate the difference of innovation performance between state-owned enterprises and non-state-owned enterprises after they receive innovation subsidies, this paper classifies the samples into state-owned enterprises and non-state-owned enterprises, explores the incentive effect of two main innovation subsidies forms on innovation performance.
According to the classification of ownership nature, the ATT of government subsidies is shown in
The reasons for this result may be as follows: Firstly, the innovation activities themselves have high cost and long cycle, and most of the government subsidies belong to prior subsidies. For enterprises with large financing constraints, especially non-state-owned enterprises, it is difficult to maintain the long-term stable supply of funds needed for R&D activities, so the policy effect is not significant. Secondly, besides the innovative behavior aimed at promoting technological progress and maintaining competitive advantage, there are also “strategic innovations” that enterprises are engaged in “seek support”. This kind of “strategic innovation” occurs more frequently in non-state-owned enterprises with capital disadvantages and high financing costs. When companies expect to receive more government subsidies, the amount of non-invention patent applications increases
Variable | Sample | Treated | Controls | Difference | S.E. | T-stat |
---|---|---|---|---|---|---|
State-owned enterprises | Unmatched | 1.9871 | 1.4510 | 0.5361 | 0.0487 | 11.02*** |
Matched | 1.9796 | 1.8670 | 0.1126 | 0.0755 | 1.49 | |
Non-state-owned enterprises | Unmatched | 1.6907 | 1.4324 | 0.2583 | 0.0418 | 6.19*** |
Matched | 1.6907 | 1.8885 | −0.1978 | 0.0828 | −2.39** |
a) Retain four-digit significant digits after decimal points of some data. b) *p < 0.10, **p < 0.05, ***p < 0.01.
significantly, which will squeeze out the number of applications for invention patents [
In theory, the R&D tax super-deduction Policy runs through the whole process of enterprise innovation activities, which can ease the constraints of enterprise financing and provide a certain degree of support for the various periods of innovation activities. Therefore, the policy effect will be more effectively transmitted to the innovation output and improve the innovation performance.
Coefficients and Standard Errors | ||
---|---|---|
State-owned enterprises | Non-state-owned enterprises | |
POL × GRO | 0.252** | 0.242*** |
(0.105) | (0.056) | |
TAXR | −0.032*** | −0.031*** |
(0.005) | (0.005) | |
LEV | −0.503** | 0.245 |
(0.240) | (0.153) | |
GROWTH | −0.054 | 0.041 |
(0.061) | (0.046) | |
CASH | 1.177** | 1.810*** |
(0.517) | (0.277) | |
AGE | −0.014 | 0.002 |
(0.013) | (0.004) | |
ASSET | 0.557*** | 0.456*** |
(0.044) | (0.059) | |
Industry | Y | Y |
Year | Y | Y |
Province | Y | Y |
N | 2636 | 4196 |
R2 | 0.456 | 0.269 |
a) Standard errors in parentheses, *p < 0.10, **p < 0.05, ***p < 0.01. b) “Y” stands for fixed effect.
This paper makes a comparative study of the effects of government subsidies and R&D tax super-deduction policy on innovation performance of enterprises. The study found that government subsidies not only did not improve the innovation performance of enterprises, but also reduced it, especially for non-state-owned enterprises. The reasons are as follows. Firstly, the choice of government subsidy is too strongly influenced by the will of the government, which easily breeds a series of problems, such as rent-seeking, “strategic innovation” and so on. Secondly, the government’s direct subsidies mostly use one-off subsidies funds in advance, while the innovation activities have a long cycle. The policy ignores the financing constraints during the enterprise’s innovation activities. In the research on the policy of R&D tax super-deduction, we find that the policy has a significant effect on the innovation performance of enterprises. It isn’t affected by the nature of enterprise ownership. The results show that after the implementation of the R&D tax super-deduction policy, the innovation performance of both state-owned enterprises and non-state-owned enterprises has been significantly improved. There are two reasons for the remarkable effect of R&D tax super-deduction policy on enterprise innovation. Firstly, the policy subsidy runs through the whole process of innovation activities and can alleviate enterprise financing constraints to a certain extent. Secondly, the tax reduction of this policy is based on the R&D expenditure generated by R&D activities of enterprises in each period. The more R&D expenditure is, the greater the tax relief will be. Therefore, in the process of implementing this policy, the problems such as “rent-seeking” and strategic innovation can be effectively avoided.
To sum up, the R&D tax super-deduction policy is more effective than the government direct subsidy in improving enterprise innovation performance. Therefore, the following suggestions are put forward: the government should play a leading role in encouraging enterprise innovation rather than leading role. Government should put market allocation resources at the core and reduce the government’s will. In other words, the government should reduce direct government subsidies and expand the publicity and implementation of the policy of R&D tax super-deduction. On the other hand, enterprises should not adopt strategic innovation for “seeking support”, which will not only increase their unnecessary friction costs, but also produce negative external effects to destroy the market innovation environment. Enterprises should make correct innovation decisions according to their own strength and long-term development plan.
Thank my teachers and classmates for their help in the thinking and empirical analysis of my article. Thank the editor for his many suggestions on the article.
The author declares no conflicts of interest regarding the publication of this paper.
Yao, X.J. (2019) Do Innovation Subsidies Policy Improve the Innovation Performance of Enterprises? Open Journal of Social Sciences, 7, 1-12. https://doi.org/10.4236/jss.2019.72001