This study aims to explore the strategic consequences of government subsidies, specifically how financial support from the government influences the strategic aggressiveness of firms in China. While existing literature has primarily focused on the performance and innovation outcomes of subsidies, this research investigates their impact on corporate strategic behavior, addressing a gap in the literature. The study employs a panel dataset of Chinese A-share listed firms from 2009 to 2024. Using fixed effects regression models and instrumental variable techniques, the research analyzes the causal relationship between government subsidies and corporate strategic aggressiveness. Mediation analysis is also used to examine the roles of investment efficiency and financing constraints as intermediary mechanisms, while moderating effects of internal control quality and firm-level heterogeneity, such as ownership structure and firm life cycle, are also considered. The results indicate that government subsidies significantly promote strategic aggressiveness in firms, mainly by alleviating financing constraints. However, the study also finds that subsidies may negatively impact investment efficiency, suggesting the potential for overinvestment. Additionally, firms with stronger internal control systems exhibit a more effective and positive strategic response to subsidies. The effects are more pronounced in state-owned enterprises, firms with high ownership concentration, and firms in the growth stage of their life cycle. Government subsidies act as a catalyst for strategic aggressiveness, particularly for firms that are either state-owned, have concentrated ownership, or are in their growth stage. The study also highlights that while subsidies ease financial constraints, they can sometimes lead to inefficiency if not carefully managed, particularly in firms with weaker internal governance structures. The findings offer valuable insights for policymakers and corporate managers. Policymakers should consider firm-specific characteristics, such as internal control quality and firm life cycle stage, when designing subsidy programs. For corporate managers, aligning internal governance systems with external support mechanisms is crucial to leveraging subsidies effectively and ensuring sustainable strategic growth.
Fu et al. (Fri,) studied this question.