The certification effect of government R&D subsidies on innovative entrepreneurial firms’ access to bank finance: evidence from China
- 273 Downloads
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.
KeywordsLegitimacy Certification Financial constraints Innovative entrepreneurial firms Government R&D subsidies IPR protection China
JEL classificationG28 O34 H25 L26
The National Natural Science Foundation of China; and the three funding numbers are: 71672087; 71533002; and 71132001.
- Fan, G., Wang, X., & Zhang, L. (2010). Annual report 2009: marketization index for China’s provinces. Beijing: National Economic Research Institute.Google Scholar
- Harris, M., & Raviv, A. (1991). The theory of capital structure. The Journal of Finance, 46, 297–355. https://doi.org/10.1111/j.1540-6261.1991.tb03753.x.CrossRefGoogle Scholar
- Häussler, C., Harhoff, D., & Müller, E. (2012). To be financed or not…—the role of patents for venture capital-financing. ZEW-Centre for European Economic Research Discussion Paper, (09–003).Google Scholar
- He, C., Lu, J. & Qian, H. (2018). Entrepreneurship in China. Small Bussiness Economics, 1–10. https://doi.org/10.1007/s11187-017-9972-5.
- Hunt, C., & Aldrich, H. (1996). Why even Rodney Dangerfield has a home page: legitimizing the world wide web as a medium for commercial endeavors. Cincinnati: Annual meeting of the Academy of Management.Google Scholar
- Hsu, D. H., & Ziedonis, R. H. (2008). Patents as quality signals for entrepreneurial ventures. In: Academy of Management Proceedings (Vol. 2008, No. 1, pp. 1–6). Academy of Management. https://doi.org/10.5465/AMBPP.2008.33653924.
- Kamien, M. I., & Schwartz, N. L. (1978). Self-financing of an R and D project. The American Economic Review, 68(3), 252–261.Google Scholar
- Maskus, K. E., Dougherty, S. M., & Mertha, A. (2005). Intellectual property rights and economic development in China. In C. Fink & K. E. Maskus (Eds.), Intellectual property and development: lessons from recent economic research (pp. 295–331). New York: World Bank Publications.CrossRefGoogle Scholar
- Pan, F., & Yang, B. (2018). Financial development and the geographies of startup cities: evidence from China. Small Business Economics, 1–16. https://doi.org/10.1007/s11187-017-9983-2.
- Scott, W. R. (1995). Institutions and organizations. Thousand Oaks: Sage.Google Scholar