What is the Role of Government Trust in a Firm's R&D Investments? Evidence from Smes

Burgeoning research on trust has revealed an incomplete understanding of how government trust shapes the R&D behaviors of small and medium enterprises (SMEs). To study this, we use data collected on 3001 Chinese SMEs to find that for every standard deviation increase in the government trust index, an SME has a 15.2% increase in the standard deviation of their R&D investments. We further discover that SME owners who are more motivated to conduct innovation will make more R&D investments when they trust the government, accounting for approximately 29% of the impact of government trust on an SME’s R&D investment. Having government trust improves the willingness of the SME owner to take more risk, leading to increased R&D investments. Finally, the effect of government trust on R&D investments is more salient when the region has a high marketization level, high legal protection, high non-government economic sectors, and low government intervention