Governance and Effects of Public R&D Subsidies : An Evidence from China

We examine whether and how government-subsidized R&D programs affect the productivity of firms. On the basis of a panel dataset of Chinese firms, we estimate ex-ante and ex-post effects of the Innovation Fund for Small and Medium Technology-based Firm (Innofund), one of the largest Chinese government programs that support corporate R&D activities. Furthermore, a quasi-experiment environment is used to investigate how the governance of Innofund influences the aforementioned effects. We find that Innofund chooses to support productive firms, and the productivity improvements of these firms are further magnified after they win government support. The ex-post effects of Innofund are stronger when the governance of the government program is more decentralized than before. Identification problems are addressed with various approaches