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More is less: The dual role of government subsidy in firms’ new product development

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  • Liu, Zixu
  • Zhou, Jianghua
  • Li, Jizhen
  • Ma, Xufei

Abstract

This study focuses on “the paradox of government support,” and examines the direct, moderating, and contingent effects of government subsidies on new product development (NPD). Drawing on the resource management perspective, we argue that subsidies lead to both learning effects and inefficiency problems. Different subsidy levels make these two conflicting effects more or less salient. Consequently, subsidies and firms’ NPD have an inverted U-shaped relationship. Moreover, subsidies negatively (positively) moderate the relationship between a firm’s internal (external) R&D investments and NPD, which is further strengthened (weakened) by state ownership. An empirical analysis of panel data on Chinese high-growth firms strongly supports our hypotheses. We discuss the implications for the resource management perspective and NPD research, high-tech industry practitioners, and policymakers in emerging economies.

Suggested Citation

  • Liu, Zixu & Zhou, Jianghua & Li, Jizhen & Ma, Xufei, 2024. "More is less: The dual role of government subsidy in firms’ new product development," Journal of Business Research, Elsevier, vol. 185(C).
    • Handle: RePEc:eee:jbrese:v:185:y:2024:i:c:s0148296324004120
    DOI: 10.1016/j.jbusres.2024.114908
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