Does the Type of Funding Affect Innovation? Evidence from Incubators in China

Abstract

Technology business incubation is vital for the promotion of innovative development and plays an essential role in economic development and social stability. This paper empirically studies the impact of fund types on incubator innovation and its mechanisms using China’s incubator data from 2015 to 2019 and the fixed effect model. It is found that incubation funds, venture capital, and fiscal subsidies can significantly promote incubator innovation, with venture capital having the most substantial boost, followed by incubation funds and fiscal subsidies. Analysis of these mechanisms reveals that the promotion of incubator innovation by different funds relies primarily on R&D expenditure and on the scale of technology services expenditures. Further analysis shows that the effect varies according to the incubator, and that a reduction in the proportion of a comprehensive incubator fund or in the proportion of subsidy for a professional incubator does not contribute to enterprise innovation. This paper provides empirical evidence to support China in its improvement of the financing mechanisms for entrepreneurship and the promotion of sustainable economic and social development.