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The more funds the better? External funds, R&D investment and firm innovation: critical role of firm leaders' international experience

Li Liu (School of Economics and Management, Tongji University, Shanghai, China)
Caiting Dong (School of Economics and Management, Beijing University of Chemical Technology, Beijing, China)

European Journal of Innovation Management

ISSN: 1460-1060

Article publication date: 14 December 2022

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Abstract

Purpose

The purpose of this study is to examine the moderating effect of two types of external funds in terms of loan and government subsidy on the relationship between R&D investment and firms' innovation performance in emerging markets, as well as the contingent role of firm leader's international experience associated with the effects of loan and government subsidy.

Design/methodology/approach

The authors tested the hypotheses using a longitudinal dataset of 716 high-tech firms of Zhongguancun Science Park (ZSP) in China during 2008–2014, covering detailed information on the operations, financial situation and R&D activities, patents, etc. The authors finally identified an unbalanced panel of 2,430 firm-year observations. Considering the dependent variable is the countable data and non-negative values, the negative binomial regression with fixed effects was adopted to test the hypotheses.

Findings

The results show that the more loans or government subsidies the firm receives, the weaker the positive effect of R&D investment on firms' innovation performance in emerging markets. Furthermore, the findings reveal that firm leaders' international experience can mitigate the negative moderating effect of government subsidies, but strengthen the negative moderating effect of loans.

Originality/value

The study provides new insights into how loans and government subsidies as external funds influence the effectiveness of R&D in enhancing innovation performance, and the findings highlight the fact that more external funds can reduce firm R&D efficiency. Moreover, the authors also enrich the resource orchestration theory by revealing the critical role of firm leaders' international experience in the decision-making of resource configuration to mitigate the inefficiency of high subsidies in emerging markets.

Keywords

Acknowledgements

The two authors joint first authors and contributed equally to this work.

The authors are grateful for helpful guidance and constructive comments received from editors and anonymous reviewers.

Funding: This study is supported by National Natural Science Foundation of China (Grant No. 71932009), China Postdoctoral Science Foundation (2022M722393) and Fundamental Research Funds for the Central Universities (ZY2111).

Citation

Liu, L. and Dong, C. (2022), "The more funds the better? External funds, R&D investment and firm innovation: critical role of firm leaders' international experience", European Journal of Innovation Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/EJIM-06-2022-0300

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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