The Impact of Firm Heterogeneity and External Factor Change on Innovation: Evidence from the Vehicle Industry Sector

Abstract

We explore the connection between firms’ technological innovation capabilities and their internal and external factors. To empirically test this relationship, we use panel data for new energy vehicle (NEV) firms and traditional fuel vehicle firms in China from 2010 to 2020. Our findings show that public subsidies do have a positive impact on firms’ technology innovation capability, and there are consistent findings for both NEV and traditional fuel vehicle firms. Firms have a supportive effect on their innovative ability when they satisfy conditions of high profitability, low leverage, high equity concentration, and highly educated employees. The inability to maximize the effectiveness of public subsidies is due to an imbalance in the internal and external factors of firms. Therefore, we innovatively analyze the internal and external factors of NEV firms as an integrated system, taking into account the high correlation between them, rather than discussing them separately. The paper is not only of academic significance to the development of NEV firms to improve their technological innovation capability and the transformation of traditional fuel vehicle firms, but also of practical significance to the reduction of greenhouse gas emissions and the achievement of the “double carbon” goal.