Your current location:





Innovation Incentive Effect of Government Subsidies and Market Financing in New Energy Automobile Industry

Abstract:This paper selects the panel data of 110 listed companies in the new energy vehicle industry from 2015 to 2018 to explore the differences in the impact of government subsidies and market financing and their synergy on enterprise research and development innovation. The results show that the government subsidy of new energy automobile industry has a significant incentive effect on the R & D innovation of enterprises, the market financing does not significantly promote the R & D innovation of enterprises, and the coordination of government subsidy and market financing can effectively promote the R & D innovation of new energy automobile industry. Through further research, it is found that for enterprises in different stages of the new energy vehicle industry chain, government subsidies have a greater incentive effect on R & D innovation of middle and upstream enterprises, while market financing has a greater incentive effect on R & D innovation of downstream enterprises, and the synergy between government subsidies and market financing has a greater incentive effect on R & D innovation of middle and upstream enterprises. At the same time, compared with state-owned enterprises, government subsidies and market financing in the new energy vehicle industry and their synergy have a greater incentive effect on R & D innovation of non-state-owned enterprises. This paper enriches the theory of innovation incentive and government intervention to a certain extent, and provides theoretical guidance for the government to support the precise design innovation policy of new energy automobile industry.


Key words:New Energy Vehicle, Government Subsidy, Market Financing, R & D Innovation


Abstract: To cultivate and develop the new energy vehicle industry is an effective solution to reduce the pressure on fossil energy and environment. But its technological bottleneck is a main problem in the industrial development. To promote R&D and Innovation is an important way to obtain industrial technological progress by governmental subsidies to compensate firm R&D and innovation input for high uncertainty and spillover effects. Currently, there are three main theoretic problems to be discussed, i.e., how do governmental subsidies and market financing stimulate firm innovation in China new energy vehicle industry? Whether governmental subsidies encourage firms to increase innovation input with their own financing funds?In the context of the reduction in government subsidies,how to balance the monetary policy and fiscal policy for the new energy vehicle industry in the future?

Existing studies mainly focus on the vertical comparison to stimulate innovation between government subsidies and market financing. Some literatures focused on the impact of government subsidies on firm innovation,emphasizing its stimulative effect and crowding out effect on firm innovation. Others focused on the relationship between financing constraints and firm innovation to analyze their promoting effect and exclusion effect of firm innovation in terms of firm financial growing. However, very few studies have integrated governmental subsidy and market financing into the same research framework to explore the different impacts of the two aspects on innovation input of new energy vehicle industry and their coordinative effects between the two variables on firm innovation. Therefore, it is difficult to answer whether the government subsidy policy can stimulate firms to increase private innovation input, and how the government should design fiscal policy and monetary policy for the new energy vehicle industry so far.

In this study, we collected the data in the annual reports of 110 new energy vehicle firms listed during 2015 to 2018 in China stock market from the CSMAR database and the WIND database, to classify the data of fiscal subsidies and tax incentives, equity and credit financing by careful reading their annual reports. In terms of the panel data, we have done comparative studies between governmental subsidies incentives, such as fiscal subsidies and tax incentives to the firm innovation, between equity financing and credit financing to firm innovation effects. And,this paper explores the collaborative effect on firm innovation by the interaction between government subsidies and market financing, comparative studies by upper, middle and downstream firms in terms of industrial chains, and state owned and non-state-owned firms in terms of firm ownership. 

The empirical study shows that government subsidies and market financing have different incentive effects on firm innovation. Specifically, both fiscal subsidies and tax incentives can significantly stimulate firms to increase R&D investment, and the role of fiscal subsidies is greater than that of tax incentives, while credit financing and equity financing do not promote firm R&D investment significantly. On the one hand, firms do not use their market financing funds into the R&D activity. On the other hand, the study also shows that government fiscal subsidies do not drive firms to input private R&D, instead of, making more dependence on government.

Moreover, the coordination between government subsidies and market financing can effectively promote firm innovation of new energy vehicle industry. The study indicates that when firms have more market financing, they are more willing to use government funds for innovation. On the contrary, when it is difficult for firms to obtain external market financing, they will use government subsidies for other purposes.

Furthermore, this study finds that firms in the industrial upstream are more dependent on government subsidies and seldom use the funds obtained from the market financing for R&D purpose, and there is no driving effect of governmental policy. The middle and downstream firms can use the government subsidies funds for R&D purpose, and input market financing for R&D use either. In this case, governmental policy can generate driving effect in good results. Therefore, in the downstream of the industry, combination between government subsidy and market financing can generate greater incentive effects on firm innovation than that of middle and upstream firms.

Finally, the empirical study also reveals that there are differences of governmental policy incentive effects to innovation between state owned firms and non-state-owned firms. The policy has greater positive impacts on non-state-owned firm than that of state-owned firm significantly. In other words, it means that non-state-owned firms are more likely to use market raising money into R&D and innovation,and government subsidy policies plays more significant positive effect to promote equity and credit financing of non-state-owned firms than that of state counterpart, because these firms got from government subsidy can transmit positive information to the market.

The conclusions of this paper have the following policy implications: (1) In the context of reduced government subsidies year by year, the government should gradually shift from fiscal subsidy policy to monetary policy based on market mechanism. For instance, policies such as interest rate subsidy and loan guaranty are more effective tools to reduce firm financing cost, so as to encourage firm innovation input. (2) government policies for the new energy vehicle industry need to be reformed and more focused in terms of different industrial chain stages and in different ownership precisely. For these firms in the middle, upstream of the industry and non-state-owned firms, government should focus policy on fiscal subsidies and loan supporting, helping them overcome financing constraints. For these firms in downstream of the industry, government should cut down fiscal subsidies, and increase loan support, to encourage firms to carry out innovation in market orientation. (3) Governmental policy should be more precise and flexible depending on the industrial chain and firm ownership, combination of fiscal subsidy and monetary policies based on market orientation would be more effective to firm innovation, and the subsidies should be more focusing on non-state-owned firms because they are more efficiency to use their subsidy.


Key words: new energy vehicle, government subsidies, market financing, R&D innovation


Author: Chi Renyong, Ruan Hongpeng, Yu Shi

Author: Institute of Small and Medium Enterprises, Zhejiang University of Technology

College of Economic and Trade Management, Zhejiang University of Technology

Business School, Anhui University of Technology

The full text has been published in Scientific Research Management, No. 5, 2021.

Key words:


See more>