Training investment, human capital upgrading and firm innovation: the role of government training subsidies

Purpose Human capital is acquired not only through formal education (e.g. general skills) but also through training at the workplace. Prior studies have ignored the role of government subsidies explicitly for on-the-job training, which may influence firm training decisions and firm innovation performance. Hence, the authors establish a comprehensive theoretical framework to consider these issues and fill these gaps. Design/methodology/approach Considering the Chinese manufacturing firms listed in the Shanghai and Shenzhen Stock Exchange from 2010 to 2017, the authors investigate the influence of training investment on innovation performance by illustrating the role of human capital updating in enhancing firm innovation. The authors also explore serval mechanisms on how training investment influences innovation performance. Findings The authors propose that training investment promotes firm innovation performance, whereas government training subsidies negatively moderate this relationship. The authors also reveal how technicists' involvement and corporate culture mediate the relationship between training investment and innovation performance. Practical implications This study provides policy implications for stimulating firm innovation by improving learning and absorption ability, strengthening cultural identity and implementing system norms. Effective policies should be adopted to provide subsidies for on-the-job training of enterprises, particularly for firms with technical executives and firms in diversified life-cycle. Originality/value This work contributes to the literature on the role of on-the-job training in promoting firm innovation and reveals the crowding-out effect of subsidies. This study also shows the heterogeneous effects of training investment on firm innovation.