School of Management
No.422 Siming Nan Road
Xiamen, Fujian 361005 China
Institutional Affiliation: Xiamen University
NBER Working Papers and Publications
|September 2018||Corruption, Government Subsidies, and Innovation: Evidence from China|
with Lily Fang, Josh Lerner, Chaopeng Wu: w25098
Governments are important financiers of private sector innovation. While these public funds can ease capital constraints and information asymmetries, they can also introduce political distortions. We empirically explore these issues for China, where a quarter of firms’ R&D expenditures come from government subsidies. Using a difference-in-differences approach, we find that the anticorruption campaign that began in 2012 and the departures of local government officials responsible for innovation programs strengthened the relationship between firms’ historical innovative efficiency and subsequent subsidy awards and depressed the influence of their corruption-related expenditures. We also examine the impact of these changes: subsidies became significantly positively associated with future inno...