To cope with
the fast-changing business environment, Chinese government makes every effort
to increase business R&D subsidies. The aim of this paper is to examine the
efficiency of Chinese government R&D subsidies on innovative performance
and the moderating role of a firm’s R&D capacity. Based on the data from
Chinese Large and Medium Firms during 1997-2012, we analyze whether government R&D
subsidies affect a firm’s innovative performance, as well as how this effect
works. The findings suggest that the firms that received increasing government
R&D subsidies will have a better innovative performance, yet up to a point.
Beyond this threshold, a greater share of government R&D subsidy will reduce
a firm’s innovative performance. And such substitution effect is larger for
firms with greater R&D capacity. Also, the firm’s own R&D capacity,
size, industry technical levels have varying degrees of impact on the
efficiency of government R&D subsidies. The findings of this paper may have
practical value and help governments to develop relative regulations and
policies.
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