Based on the data from the Shanghai Science and Technology Enterprises survey 2011 to 2015, this paper evaluates how the InnoCom program of stimulating corporate research and development (R&D) implemented in China affects the innovation performance of beneficiary firms from both theoretical and empirical perspectives. We first develop a unified framework considering innovation inputs, absorptive capacity and innovation outputs. Then, we explore the mechanism by which companies with evaluation scores exceeding a certain threshold are more likely to be certified as high and new technology enterprises that qualify for the InnoCom program, and use a fuzzy regression discontinuity design to test whether the policy increases internal R&D inputs, profit, and the number of independent intellectual property rights. After correcting for potential endogeneity problems, the result confirms a positive, significant, and lasting impact of the InnoCom program on high-tech income and the number of intellectual property rights. Meanwhile, there is no significant impact on immediate corporate innovation investment, which suggests a crowding-out effect of government direct subsidies on a company’s internal innovation investment. These conclusions are further confirmed by robustness tests. Our findings will help the government understand implementation effect of innovation policies and support them seeking to formulate more effective innovation strategies.

Introduction

Continuing innovation, diffusion, and technical improvement are widely recognized as main stimuli to national economic growth and international competitiveness in industrial, newly industrialized, and emerging economies (Archibugi et al., 1991; Ernst and Kim, 2002; Guan and Chen, 2012). As China’s industrialization has entered a mature stage, the country’s leaders have focused on nurturing technology-intensive industries as a source of future growth (Ding and Li, 2015). Corporate technological innovation has become the leading force for a country to increase its overall competitiveness. The government of China has launched a series of encouragement policies to increase support for corporate research and innovation activities, but whether these policies can achieve their expected goals is debatable. As a guiding policy, how has the InnoCom program affected the innovation performance of enterprises? Existing economic theories show that imperfect appropriability, spillovers, and uncertainty of a company’s innovation output make it difficult for the company to completely internalize the benefits of R&D investment. Therefore, if there is no external support, the equilibrium level of private resources allocated to R&D will be lower than the social optimal level (Spence, 1984). To achieve the optimal allocation of innovative resources and reduce the financing costs and information asymmetries between developers and borrowers, most countries have formulated policies or programs to support corporate R&D activities through tax reductions, fiscal subsidies, and other incentives. These policies are intended to reduce the cost of R&D expenditure for companies and thus stimulate research investment.