The asymmetric innovation effects of heterogeneous government subsidies: A new perspective from GDP target deviation

Abstract

This study investigates how gross domestic product (GDP) target deviation affects the relationship between government subsidies and corporate innovation. We find that GDP target deviation weakens the incentive effect of government subsidies, leading to asymmetric innovation effects. The asymmetric effects are meant for innovation quantity, rather than innovation quality. The results remain robust after considering omitted variable concerns, adopting the instrumental variable approach and propensity score matching method to mitigate endogeneity issues, and conducting many other robustness checks. In addition, firms' technology and human capital investments are the mechanisms. Heterogeneity shows that R&D subsidies are more affected by GDP target deviation and have a decrease in enhancing corporate innovation compared with non-R&D subsidies. Furthermore, the asymmetric innovation effects of government subsidies are more notable in firms that receive less public scrutiny and those in areas with less political stability. Our findings provide new insight into the innovation effect of government subsidies through the lens of GDP target deviation.