Too Much of a Good Thing: The Dual Effect of R&D Subsidy on Firms’ Exploratory Innovation

Abstract

The primary purpose of this article is to explore how public research and development (R&D) subsidies influence firms-level exploratory innovation, as well as the internal organizational contingencies that moderate the impact of R&D subsidies. By employing panel data of a group of manufacturing firms in Jiangsu Province from 2010 to 2014, we find a dual effect of R&D subsidies on firms’ exploratory innovation, which is shown as an inverted U-shaped pattern. This suggests that R&D subsidies within an appropriate range can facilitate firms’ exploratory innovation. Additionally, we propose that firm-level technological capabilities positively moderate this curvilinear effect; however, firms’ R&D collaborations with universities and public research institutes do not have such a moderating effect. The results of this article enrich our understanding of the impact of R&D subsidies, especially on firm exploratory innovation. Based on the findings of this article, we contribute implications on government policymaking and firm strategic technological practices.