Can government R&D subsidies jointly leverage external and internal funds of enterprises to assist R&D Empirical evidence from China

This paper studies whether R&D subsidy can jointly leverage external and internal funds of enterprises to assist R&D. It found that R&D subsidy can significantly promote external financing, and this promotion effect becomes more obvious with the increase of R&D subsidy. Moreover, R&D subsidy can not only help enterprises with R&D by guiding external funds but also promote enterprises to increase their own funds for innovative activities. However, with the further increase of R&D subsidy, external financing will gradually squeeze out the funds for R&D activities within the enterprises, thus making the R&D investment level caused by the enterprises' own funds begin to decrease instead. This shows that as the R&D subsidy increases to a certain extent, although more external funds can be leveraged to assist enterprises in R&D, it will squeeze out the self-owned funds used for R&D within enterprises, thus making the total R&D investment possibly reduce instead.