Do government subsidies promote new-energy firms' innovation? Evidence from dynamic and threshold models

This study investigates the effects of government innovation and noninnovation subsidies on the innovation of new-energy firms. Static and dynamic linear models and threshold models were established using 2012-2016 data from China's listed new-energy companies. We find complex nonlinear relationships that exist between government innovation and noninnovation subsidies and firms' innovation inputs and outputs. Only at certain intervals can government innovation and noninnovation subsidies play a role in promoting firms' innovation. In addition, firms have innovative inertia, although government subsidies may not always be effective. Even if the role of government subsidies is not immediately visible, firms can still maintain a certain innovation performance through inertia. Additionally, there are regional differences in the effect of government subsidies. Although firms in the eastern coastal area receive fewer subsidies, they use the subsidies more efficiently. Noncoastal areas receive more subsidies, yet the effect on innovation has not met expectations, and some firms' innovation may be a strategic behavior to obtain other benefits. Therefore, the government should consider the interval effect of subsidies and firms' innovative inertia when making policies. Moreover, in large countries such as China, where the local environment for innovation is vastly heterogeneous, it is important for the government to account for regional differences, bearing in mind the possible strategic behavior. (c) 2020 Elsevier Ltd. All rights reserved.