IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v90y2024icp241-251.html
   My bibliography  Save this article

How do government subsidies affect OFDI of private enterprises? Evidence from China

Author

Listed:
  • Liu, Yuandan
  • Tang, Tingfeng
  • Li, Haiyang
  • Luo, Limin

Abstract

Compared with state-owned enterprises, private enterprises generally face strict financing constraints, especially in the process of internationalization which have a greater demand for funds. At the meantime, we focus on how government subsidies, as a form of financial support, affect the outward foreign direct investment (OFDI) of private enterprises. Using micro-data from the CSMAR database covering private listed companies from 2013 to 2017, this empirical study reveals that government subsidies positively promote OFDI of private enterprises. Moreover, financing constraints have an adverse effect on OFDI, but government subsidies help mitigate this effect. Furthermore, the results indicate that the impact of government subsidies on private enterprises' OFDI varies depending on the degree of marketization.

Suggested Citation

  • Liu, Yuandan & Tang, Tingfeng & Li, Haiyang & Luo, Limin, 2024. "How do government subsidies affect OFDI of private enterprises? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 90(C), pages 241-251.
    • Handle: RePEc:eee:reveco:v:90:y:2024:i:c:p:241-251
    DOI: 10.1016/j.iref.2023.12.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056023004537
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2023.12.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Feldman, Maryann P. & Kelley, Maryellen R., 2006. "The ex ante assessment of knowledge spillovers: Government R&D policy, economic incentives and private firm behavior," Research Policy, Elsevier, vol. 35(10), pages 1509-1521, December.
    2. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    3. Marco Pagano & Giovanni Pica, 2012. "Finance and employment [Credit constraints as a barrier to the entry and post-entry growth of firms]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(69), pages 5-55.
    4. Catozzella, Alessandra & Vivarelli, Marco, 2011. "Beyond Additionality: Are Innovation Subsidies Counterproductive?," IZA Discussion Papers 5746, Institute of Labor Economics (IZA).
    5. Andrew B. Abel & Janice C. Eberly, 2011. "How Q and Cash Flow Affect Investment without Frictions: An Analytic Explanation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(4), pages 1179-1200.
    6. Holger Görg & Eric Strobl, 2007. "The Effect of R&D Subsidies on Private R&D," Economica, London School of Economics and Political Science, vol. 74(294), pages 215-234, May.
    7. Robert Wieser, 2005. "Research And Development Productivity And Spillovers: Empirical Evidence At The Firm Level," Journal of Economic Surveys, Wiley Blackwell, vol. 19(4), pages 587-621, September.
    8. repec:bla:jfinan:v:59:y:2004:i:4:p:1777-1804 is not listed on IDEAS
    9. Toni M. Whited & Guojun Wu, 2006. "Financial Constraints Risk," The Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 531-559.
    10. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    11. Brown, James R. & Petersen, Bruce C., 2011. "Cash holdings and R&D smoothing," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 694-709, June.
    12. Claudia Buch & Iris Kesternich & Alexander Lipponer & Monika Schnitzer, 2014. "Financial constraints and foreign direct investment: firm-level evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(2), pages 393-420, May.
    13. repec:oup:ecpoli:v:27:y:2012:i:69:p:5-55 is not listed on IDEAS
    14. Defever, Fabrice & Riaño, Alejandro, 2017. "Subsidies with export share requirements in China," Journal of Development Economics, Elsevier, vol. 126(C), pages 33-51.
    15. Papageorgiou, Chris & Perez-Sebastian, Fidel, 2006. "Dynamics in a non-scale R&D growth model with human capital: Explaining the Japanese and South Korean development experiences," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 901-930, June.
    16. Scott J. Wallsten, 2000. "The Effects of Government-Industry R&D Programs on Private R&D: The Case of the Small Business Innovation Research Program," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 82-100, Spring.
    17. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 169-215.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Siqi Li & Mengdi Sun, 2024. "Spillover effects of government subsidies on outward foreign direct investment: Evidence from China," Review of International Economics, Wiley Blackwell, vol. 32(4), pages 1521-1566, September.
    2. Si, Deng-Kui & Li, Hong-Xue & Wu, Shilei & Zhou, Fuyou, 2024. "Does local government debt management affect cross-border M&As? Evidence from China," Economic Modelling, Elsevier, vol. 141(C).
    3. Song, Yingjie & Dong, Jie, 2024. "Executives’ green experience and corporate ESG performance: Do government subsidies matter?," Finance Research Letters, Elsevier, vol. 69(PA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Yafei & Dong, Xiaoqi & Sun, Jinping, 2024. "R&D project subsidy V.S. government innovation reward: The effectiveness on corporate innovation," China Economic Review, Elsevier, vol. 88(C).
    2. Qiao, Lu & Fei, Junjun, 2022. "Government subsidies, enterprise operating efficiency, and “stiff but deathless” zombie firms," Economic Modelling, Elsevier, vol. 107(C).
    3. Yan, Bing & Zhang, Yu & Shen, Yanzhi & Han, Jian, 2018. "Productivity, financial constraints and outward foreign direct investment: Firm-level evidence," China Economic Review, Elsevier, vol. 47(C), pages 47-64.
    4. Liu, Duan & Li, Zhiyuan & He, Hongbo & Hou, Wenxuan, 2021. "The determinants of R&D smoothing with asset sales: Evidence from R&D-intensive firms in China," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 76-93.
    5. Huang, Winifred & Mazouz, Khelifa, 2018. "Excess cash, trading continuity, and liquidity risk," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 275-291.
    6. Guo, Di & Guo, Yan & Jiang, Kun, 2022. "Government R&D support and firms’ access to external financing: funding effects, certification effects, or both?," Technovation, Elsevier, vol. 115(C).
    7. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series 2013_09, Department of Economics, Loughborough University, revised Sep 2013.
    8. Banerjee, Rajabrata & Gupta, Kartick & Mudalige, Priyantha, 2020. "Do environmentally sustainable practices lead to financially less constrained firms? International evidence," International Review of Financial Analysis, Elsevier, vol. 68(C).
    9. Cao, Shutao & Leung, Danny, 2020. "Credit constraints and productivity of SMEs: Evidence from Canada," Economic Modelling, Elsevier, vol. 88(C), pages 163-180.
    10. Popov, Alexander, 2014. "Credit constraints and investment in human capital: Training evidence from transition economies," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 76-100.
    11. Oscar Mauricio Valencia-Arana & Jose Eduardo Gomez-Gonzalez & Andrés Garcia-Suaza, 2017. "Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation," Borradores de Economia 1004, Banco de la Republica de Colombia.
    12. Qiu, Jiaping & Wan, Chi, 2015. "Technology spillovers and corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 115(3), pages 558-573.
    13. Falavigna, Greta & Ippoliti, Roberto, 2023. "SMEs’ behavior under financial constraints: An empirical investigation on the legal environment and the substitution effect with tax arrears," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    14. Keming Li, 2021. "The effect of option trading," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-32, December.
    15. Li, Chengming & Wang, Yilin & Zhou, Zhihan & Wang, Zeyu & Mardani, Abbas, 2023. "Digital finance and enterprise financing constraints: Structural characteristics and mechanism identification," Journal of Business Research, Elsevier, vol. 165(C).
    16. Joye Khoo & Adrian (Wai Kong) Cheung, 2023. "Does skilled labor risk matter to suppliers? Evidence from trade credit," The Financial Review, Eastern Finance Association, vol. 58(2), pages 423-447, May.
    17. Gabriele Angori & David Aristei, 2020. "Heterogeneity and state dependence in firms’ access to credit: Microevidence from the euro area," SEEDS Working Papers 0220, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Feb 2020.
    18. Lou, Zhaohui & Xie, Qizhuo & Shen, Jim Huangnan & Lee, Chien-Chiang, 2024. "Does Supply Chain Finance (SCF) alleviate funding constraints of SMEs? Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PA).
    19. Tao Shen, 2017. "Credit spreads and investment opportunities," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 117-152, January.
    20. Sean Cleary & Ashrafee Hossain, 2020. "POSTCRISIS M&As AND THE IMPACT OF FINANCIAL CONSTRAINTS," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(2), pages 407-454, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:90:y:2024:i:c:p:241-251. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.