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The certification effect of government R&D subsidies on innovative entrepreneurial firms’ access to bank finance: evidence from China

Author

Listed:
  • Li Li

    (Nankai University)

  • Jean Chen

    (Xian Jiaotong-Liverpool University)

  • Hongli Gao

    (Nankai University)

  • Li Xie

    (Xian Jiaotong-Liverpool University)

Abstract

In this paper, we argue that obtaining government R&D subsidies has a certification effect and is used by innovative entrepreneurial firms as a legitimation strategy to access bank finance. We extend the extant literature on the certification effect by combining legitimacy theory with information asymmetry to build our theoretical framework. We test our theoretical model under China’s unique institutional setting, in particular, the weak intellectual property rights (IPR) protection. Using 549 listed and 192 unlisted Chinese innovative entrepreneurial firms from 2009 to 2013, we find a positive certification effect on the acquisition of bank loans for all those sample firms. This positive effect is more profound in unlisted firms in our sample than the listed ones. We further find that regional variation of IPR protection has a moderating effect on the effectiveness of the certification. The certification effect is more significant in those regions where IPR protection is weaker.

Suggested Citation

  • Li Li & Jean Chen & Hongli Gao & Li Xie, 2019. "The certification effect of government R&D subsidies on innovative entrepreneurial firms’ access to bank finance: evidence from China," Small Business Economics, Springer, vol. 52(1), pages 241-259, January.
    • Handle: RePEc:kap:sbusec:v:52:y:2019:i:1:d:10.1007_s11187-018-0024-6
    DOI: 10.1007/s11187-018-0024-6
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    More about this item

    Keywords

    Legitimacy; Certification; Financial constraints; Innovative entrepreneurial firms; Government R&D subsidies; IPR protection; China;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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