The more subsidies, the longer survival? Evidence from Chinese manufacturing firms

How do government subsidies affect firm survival? By using Chinese firm-level data for 1998 to 2007, we show that, on average, there is a positive and significant impact of government subsidies on firm survival. We also investigate the heterogeneous effects of government subsidies with different intensities on firm survival, and find that moderate-intensity government subsidies exert a positive impact on firm survival, while high-intensity government subsidies increase the exit probabilities, the underlying mechanisms via subsidy-seeking investment and innovation incentive weakening are supported by empirical evidence. Furthermore, we explore the role of governance institutions in the subsidy-survival relationship, and find that the positive impact of government subsidies on firm survival is more pronounced in regions with better governance institutions.