The Relationships between Government Subsidies, Innovation Input, and Innovation Output: Evidence from the New Generation of Information Technology Industry in China

Abstract

Strategic emerging industries are gradually becoming the main driving force promoting the development of the national economy. As one of the strategic emerging industries, the New Generation of Information Technology Companies (NGITCs) play a crucial role in accelerating the integration of information and industrialization and in promoting the information processing of the whole society, with the support of various policy tools, such as government subsidy policy. Based on the panel data on the Chinese A-Stock Market (Shanghai and Shenzhen Stock Markets) from 2011 to 2020, this article empirically studies the correlations between the government subsidies, innovation input, and innovation output of the NGITCs. In the first step, we check the immediate effect and delayed effect of the government subsidies on the innovation output of the NGITCs and further test whether the ownership and geographical locations of the NGITCs have moderating effects between the government subsidies and innovation output of the NGITCs. In the second step, we investigate the government subsidies’ immediate impact and the delayed effect on the innovation input of the NGITCs. In the third step, we examine the innovation input’s immediate effect and the delayed effect on the innovation output of the NGITCs. In the last step, we analyze the mediating role of innovation input between government subsidies and the innovation output of the NGITCs. Our findings indicate that government subsidies positively promote the innovation output of the NGITCs and have a two-year-delayed effect. However, the government subsidies can most significantly increase the innovation output of the non-state-owned enterprises and those in the coastal areas. The government subsidies enhance the innovation input and have a three-year positive delayed effect. Innovation input positively impacts innovation output and also has a two-year-delayed effect. Our results also show that innovation input presents a partial mediating effect between government subsidies and the innovation output of the NGITCs.