Do government subsidies crowd out technological capabilities? Effects on Chinese high-tech firms’ invention outcomes

Abstract

Purpose

Extant research on the crowding-out effects of government subsidies on the positive role of firm innovation resources or activity remains limited. This paper aims to investigate the crowding-out effects of subsidies on the utilization of technological capabilities and also the contingency mechanisms of market-oriented economy based on the resource-based view (RBV), given the co-existence of the subsidies and technological capabilities for firm innovation in transitional economy.

Design/methodology/approach

This paper used panel data of 115 Chinese high-tech firms from 2002 to 2010. Fixed-effects model was used to test several hypotheses.

Findings

This paper empirically demonstrates that the subsidies crowd out the utilization of firms’ technological capabilities for invention outcomes in the near-term. Furthermore, this paper finds that the crowding-out effects are weaker when firms have high export intensity or are located in provinces with high market-oriented systems.

Research limitations/implications

The findings of this paper apply to Chinese firms. Future research could test their generalizability to different samples and other transitional economies.

Practical implications

This paper highlights the crowding-out effects of the subsidies, revealing that high-tech firms should balance the direct effects and crowding-out effects of the subsidies.

Originality/value

This paper highlights the neglected interactions between the subsidies and technological capabilities based on RBV and provides a more nuanced understanding of the crowding-out effects of the subsidies in transitional economy.

Citation

Chen, S., Fu, F., Xiang, T. and Zeng, J. (2020), "Do government subsidies crowd out technological capabilities? Effects on Chinese high-tech firms’ invention outcomes", Chinese Management Studies, Vol. 14 No. 4, pp. 895-913. https://doi.org/10.1108/CMS-06-2019-0238