The double-edged sword effect of government subsidy policy on enterprises innovation: evidence from China

This study examines the impact of ‘Specialized, Sophisticated, Unique and New’ Little Giant Enterprises government direct subsidy policy on firms’ innovation quantity and quality in China. Based on the data of 22,330 Chinese A-share listed firms from 2014 to 2024, this paper reveals that although this government subsidy policy generates positive effects on the quantity of firms’ innovation, it exerts negative influences on the innovation quality simultaneously and only boosts the innovation quantity in developed regions. Mechanism analysis reveals that the implementation of government direct subsidy policy decreases innovation quality through cutting R&D expenditure per R&D staff, while it also boosts innovation quantity through raising R&D investment intensity. This study further explores the spatial spillover effects of this subsidy policy by using spatial causal inference. The results indicate that this subsidy policy also generates significant positive spillover effects on innovation quantity and negative spillover effects on innovation quality.