Do government subsidies improve innovation investment for new energy firms: A quasi-natural experiment of China's listed companies

This paper applies the fixed effects and the difference-in-differences models to explore the impact of government subsidies on the innovation investment of new energy firms by the financial information of China's listed companies from 2007 to 2017. The empirical results demonstrate that the subsidy scale of new energy enterprises has an inverted U-shaped relationship with enterprise innovation investment. The higher subsidy level has a crowding out effect on the research and development (R&D) investment of enterprises, which is largely attributable to the managerial myopia of enterprises. We further confirm the existence of the crowding out effect by exploring the quasi-natural experiment of China's new energy vehicle subsidy adjustment policy in 2016. We find that reducing subsidies is associated with a significant increase in R&D investment. This study reveals the optimal choice of government intervention.

Automated summary

This paper applies fixed effects and difference-in-differences models to investigate the impact of government subsidies on the innovation investment of new energy firms in China. The empirical results suggest an inverted U-shaped relationship between subsidy scale and enterprise innovation investment. Higher subsidy levels have a crowding out effect on research and development (R&D) investment, primarily due to managerial myopia. The existence of this crowding out effect is further confirmed through an exploration of China's 2016 new energy vehicle subsidy adjustment policy. This study reveals the optimal choice of government intervention.