Firm Performance and State Innovation Funding: Evidence from China's Innofund Program

52 Pages Posted: 24 Apr 2015 Last revised: 1 Mar 2017

See all articles by Yanbo Wang

Yanbo Wang

National University of Singapore (NUS) - NUS Business School

Jizhen Li

Tsinghua University - School of Economics & Management

Jeffrey L. Furman

Boston University - Department of Strategy & Policy; National Bureau of Economic Research (NBER)

Date Written: November 21, 2016

Abstract

Can firms leverage public entrepreneurship investments to improve innovation and financial performance? Analysis of this question is frustrated by the difficulty of distinguishing treatment from selection effects. We take advantage of internal administrative data on applications to China’s Innofund program in order (a) to identify which application features are associated with higher chances of obtaining grants and (b) to evaluate the causal impact of receiving a grant on firm performance using a regression discontinuity (RD) design. With regards to grant receipt, we find that firms possessing observable merits and political connections are more likely to receive Innofund grants. We also find evidence of bureaucratic intervention, as applicants’ evaluation scores are non-randomly missing and that some firms whose scores did not meet funding standards nonetheless received grants. With regards to post-grant performance, we find that firms receiving high project evaluation scores and Innofund grants perform better than those that do not receive grants and have lower scores. These do not appear to be causal effects, however. Applying Fuzzy RD methods, we find no evidence that receiving an Innofund grant boosts survival, patenting, or venture funding. Our analysis demonstrates the value of administrative data for causal analysis and for uncovering evidence regarding the possibility that bureaucratic intervention affects firm and program outcomes.

Keywords: innovation policy, R&D subsidies, entrepreneurial finance, regression discontinuity, political connections, bureaucratic intervention, China

JEL Classification: G28, M13, O38

Suggested Citation

Wang, Yanbo and Li, Jizhen and Furman, Jeffrey L., Firm Performance and State Innovation Funding: Evidence from China's Innofund Program (November 21, 2016). Research Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2597673 or http://dx.doi.org/10.2139/ssrn.2597673

Yanbo Wang (Contact Author)

National University of Singapore (NUS) - NUS Business School ( email )

Mochtar Riady Building #6-40
15 Kent Ridge Drive
Singapore, 117592
Singapore

Jizhen Li

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Jeffrey L. Furman

Boston University - Department of Strategy & Policy ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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