Support the stronger or the weaker? Influence each other between subsidies and enterprise innovation

ABSTRACT Based on the listed companies in China, this paper studies the influence of government subsidies, R&D expenditures, and enterprise innovation using the Panel Vector Autoregression (PVAR) model on one another and by applying Generalised Method of Moments, Impulses Response Function, and Forecast-Error Variance Decomposition, by dividing enterprise innovation into substantive innovation and strategic innovation. Furthermore, the results show that subsidies and R&D expenditures of enterprises and the impact of scale on the relationship influence each other. Government subsidies and substantive innovation influence each other, while R&D expenditures and strategic innovation influence each other. Furthermore, scale affects the relationship among variables. There is a strong interrelationship between subsidies and R&D expenditures for small-scale enterprises, and a strong interrelationship between subsidies and substantive innovation for large-scale enterprises.

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