Title: Can government R&D subsidies jointly leverage external and internal funds of enterprises to assist R&D? Empirical evidence from China

Authors: Xing Liu; Huan Shao; Chun Su

Addresses: School of Economics & Business Administration, Chongqing University, Shapingba District, Chongqing, China ' School of Economics & Business Administration, Chongqing University, Shapingba District, Chongqing, China ' School of Economics & Business Administration, Chongqing University, Shapingba District, Chongqing, China

Abstract: This paper studies whether R&D subsidy can jointly leverage external and internal funds of enterprises to assist R&D. It found that R&D subsidy can significantly promote external financing, and this promotion effect becomes more obvious with the increase of R&D subsidy. Moreover, R&D subsidy can not only help enterprises with R&D by guiding external funds but also promote enterprises to increase their own funds for innovative activities. However, with the further increase of R&D subsidy, external financing will gradually squeeze out the funds for R&D activities within the enterprises, thus making the R&D investment level caused by the enterprises' own funds begin to decrease instead. This shows that as the R&D subsidy increases to a certain extent, although more external funds can be leveraged to assist enterprises in R&D, it will squeeze out the self-owned funds used for R&D within enterprises, thus making the total R&D investment possibly reduce instead.

Keywords: China; government R&D subsidy; external financing funds of the enterprise; own funds within the enterprise; enterprise R&D investment.

DOI: 10.1504/EJIM.2025.149296

European Journal of International Management, 2025 Vol.27 No.3, pp.473 - 509

Received: 12 May 2020
Accepted: 02 Sep 2020
Published online: 24 Oct 2025 *

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