Effects of Research and Development Subsidies on Research and Development Investment and Firm Performance: Evidence From High-Tech Firms in China

Over the past decade, the Chinese government has actively promoting research and development (R&D) in high-tech industries to foster scientific and technological innovation and address economic slowdown. Against this backdrop, this study explores how the interaction between government R&D subsidies and R&D investment influences the performance of high-tech firms in China. Specifically, it investigates (i) the relationship between government R&D subsidies and firm performance, (ii) the relationship between government R&D subsidies and R&D investment, and (iii) the mediating role of R&D investment in the relationship between government R&D subsidies and firm performance. Analysing 773 listed high-tech firms from 2018 to 2021, this study finds that direct government R&D subsidies and tax incentives do not significantly influence firm performance. However, direct subsidies indirectly reduce firm performance by stimulating R&D investments that are resource-intensive and risky in nature. This mediating effect is not observed in the case of tax incentives. The findings provide insights into enhancing the effectiveness of R&D subsidies in promoting R&D investment and firm performance in high-tech industries.