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.
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Notes
Such “implementation effect” is measured based on the four dimensions: (1) social legalization, (2) the local government’s attitude of enforcement, (3) facilities of relative services agency, and (4) the consciousness of social intellectual property protection. Please refer to Yao and Rao (2009) for detailed information on how to measure these four dimensions and how to construct China’s GPI after considering such “implementation effect.” Based on Yao and Rao (2009), we calculate the provincial-level data of IPR protection for 31 provinces in our sampled period, i.e., from 2009 to 2013.
The seven fields include (1) Electronic Information Technology; (2) Biological, Medical Technology; (3) New Materials; (4) Integrated Light, Electronics and Machinery; (5) New Energy and Efficient Energy-saving; (6) Environment Protection; and (7) Other High-tech Fields.
The Chinese government has designed the multi-tier capital market for firms at different stages of growth and of different quality and risk profiles, satisfying their capital-raising needs and different risk appetites of investors. So far, China has developed various capital markets, including the Main Board (MB) market, the Small and Medium Enterprise Board (SMEB) market, and the Growth Enterprise Board (GEB) market, and the New Third Board market.
The MB markets from both Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) are markets for the issuance and trading of stocks of relatively large and well-established firms.
The SMEB market was established in May 2004 and aims to serve firms in a relatively mature stage of development and with stable profitability. The SME Board is considered a barometer of the Chinese manufacturing sector.
The GEB market was launched in October 2009 and primarily targets innovative firms with profitability. The GEB market reflects innovative efforts in both technology and business models in Chinese high-tech firms. It is open to firms of all sizes that meet the listing criteria.
The New Third Board is an experimental platform that was initiated in 2006, which is intended to facilitate financing for China’s unlisted small, promising high-tech firms mainly located in Beijing’s Zhongguancun Science Park, allowing them to transfer shares and raise funds for specific purposes.
The “special treatment” tag denotes firms that have suffered losses for two or more consecutive years or which have entered delisting procedures.
Based on our calculation, the average firm size of all listed firms and all unlisted firms from the New Third Board is 19.77.
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The National Natural Science Foundation of China; and the three funding numbers are: 71672087; 71533002; and 71132001.
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Li, L., Chen, J., Gao, H. et al. The certification effect of government R&D subsidies on innovative entrepreneurial firms’ access to bank finance: evidence from China. Small Bus Econ 52, 241–259 (2019). https://doi.org/10.1007/s11187-018-0024-6
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DOI: https://doi.org/10.1007/s11187-018-0024-6
Keywords
- Legitimacy
- Certification
- Financial constraints
- Innovative entrepreneurial firms
- Government R&D subsidies
- IPR protection
- China