Fiscal expenditure responsibilities of public–private partnerships and corporate innovation investment—evidence from prefecture-level cities in China

Many public–private partnership (PPP) projects in China are facing increased fiscal expenditure responsibilities and weakened fiscal capacity, which may hinder investment in corporate innovation. Using data from Chinese prefecture-level cities and listed firms from 2014 to 2020, we find that PPP fiscal expenditure responsibilities negatively affect firms’ current and future innovation investment by reducing government subsidies and increasing corporate taxes. This negative effect is more pronounced when PPP fiscal expenditure responsibilities exceed a certain threshold. It is also stronger when local governments have higher levels of debt and lower central transfer payments. The effect is also stronger if the PPP project’s return mechanism increases the government’s future fiscal expenditure responsibilities, but weaker if the project’s operating model revitalizes government assets. The effect on private firms, small firms, high-debt firms, and firms facing strong financing constraints is more pronounced. From the perspective of fiscal capacity, this paper explains the underlying reasons why the effectiveness of government support policies for corporate innovation varies. Additionally, it examines the negative impacts of the financing-oriented PPP model on corporate innovation investment, providing empirical evidence to support options for optimal PPP strategies.