The effects of government subsidy measures on corporate R&D expenditure: a case study of the leading product development programme
by Day-Yang Liu, Lon-Fon Shieh
International Journal of Product Development (IJPD), Vol. 2, No. 3, 2005

Abstract: The purpose of this study is to develop a theoretical model with which to describe the relationship between public R&D subsidy programmes and corporate R&D spending. For this I have chosen Taiwan's leading product development programme as a basis for empirical study. The basic model for this study is to apply both the Capital Asset Pricing Model by Sharpe and Linter (1964) and Arbitrage Pricing Theory by Ross (1973) to the analytical return-risk framework in corporate R&D spending by Carmichael (1981). The total samples of the firms involved in this government R&D subsidies programme are firms during the 1991–2000 time period. The empirical results show that no matter the size of the company, the self-finance funding in R&D spending of the company shows positive correlation with both the corporate capital of the company and the government R&D subsidy. In contrast, the results also show a negative correlation with the sales revenue a year ahead. A single policy may entice companies to raise R&D expenditure under the conditions of investment tax credit on personnel training and on R&D spending, the technology development programme for enterprise, and subsidies from the leading product development programme. If the government exerts subsidy measures combined with bundling measures, this will demonstrate that the synergy of a comprehensive policy will be better than a single policy.

Online publication date: Mon, 27-Jun-2005

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