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 A research on the influence of government subsidies on enterprises′ willingness for and income from financing and investment

Li Jin, Shen Jiang, Fu Liping   

  1.  Department of Management and Economics, Tianjin University, Tianjin 300072, China
  • Online:2020-12-20 Published:2020-12-16
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Abstract:   Due to high risk, high uncertainty and lack of guaranty of enterprise technology innovation projects, enterprises often face financing constraint, which is further aggravated by problems such as asymmetric information, opportunism, adverse selection and moral hazard. In addition, when the market follower can complete this process at a lower cost, the innovation activities of enterprises will face the risk of horizontal competition, which will reduce the innovation willingness of enterprises. From a macro perspective, the intervention of government fiscal subsidies is effective in promoting technology innovation of enterprises. However, there are still arguments on the intervention time, strength and actual effect and most of the literatures provide case studies carried out based on some individual cases, lacking of more universal data analysis, modeling and policy simulation research. Based on the current situation, this paper discusses the time, strength and actual effect of the government′s subsidy policy and its incentive mechanism to alleviate financing constraint in the process of technology innovation. From the perspectives of capital input, input/output ratio and benefit, the paper analyzes the dynamic game situation between enterprises and financing institutions and between enterprises and competitors in the same industry. Furthermore, a new method for parameter space analysis and policy simulation based on sequential game model is proposed. On the basis of Hotelling model, Fudenberg model and Tirole model in a duopoly market, a revenue function model based on sequential game involving government, financing institutions and enterprises is established. The Hotelling model is used to describe the market competition between enterprises and their competitors, while the Fudenberg model and Tirole model are used to simulate the competition and its process of enterprise technology innovation. This constitutes the first-level game model between enterprises and financing institutions and the second-level game model between enterprises and their competitors in the same industry. The government intervention model and its adjustment strategy will be realized based on the two levels of game process. Based on the above models, this paper constructs a solution to the interaction mechanism among government, enterprises and financing institutions in different situations. It adopts the backward induction method for numerical simulation analysis, providing the problem space formed under different boundary conditions and its optimal solution threshold, so as to determine the optimal strategy for enterprises, competitors and financing institutions under government intervention. Besides, this paper focuses on analyzing the relation mode between government intervention and financing time, innovation willingness and R & D expenditure of enterprises. 

In order to analyze the effectiveness of government subsidies, a new model is further proposed to distinguish and define the effectiveness of government subsidies by adopting data space thresholds, so as to make policy analysis more universal and optional. In addition, the paper simulates the income and R & D input of enterprises and financing institutions under different levels of government subsidies, then obtaining the "digital portrait" of various possible cooperative game behaviors among government, enterprises and financing institutions. 1) In view of the first-level game situation, this paper establishes the function of corporate income and financing time, and compares the influence of government subsidies on the optimal financing time of enterprises. The results show that when the government subsidy coefficient is lower than the threshold , the optimal financing time is directly proportional to the government subsidy, and the positive effect of the government subsidy is marginally incremental. 2) In view of the second-level game situation, this paper analyzes the relationship between the relative income of enterprises and government subsidies. 〖JP2〗Due to the existence of competitors in the industry, enterprises will take the lead in technological innovation only when the benefits of technological innovation are higher than those of followers. This shows that government subsidies and enterprises′ comparative competitive advantage are in an "inverted U" relationship. That is, only when  is in the range of (0.05, 0.172), government subsidies can be helpful to improve the technology innovation willingness of enterprises. 3) This paper analyzes the R & D input of enterprises in the process of the two levels of game. It is found that government subsidy has obvious crowding-out effect, which is related to R & D cost and government subsidy coefficient and a threshold  exists. When the ratio of the government subsidy coefficient and the enterprise R & D cost is lower than the threshold , the government subsidy can effectively promote R & D input of enterprises. The threshold  is directly proportional to the government subsidy coefficient and the R & D cost of enterprises. 〖JP〗
Finally, based on the above conclusions, this paper provides the following suggestions on the subsidy policies: 1) Within the scope of research, the positive effect of government subsidies on the financing time of enterprises is marginally incremental. This is because government subsidies will reduce the R & D cost of enterprises to a certain extent. At this time, enterprises may choose to employ their own funds more to support technology innovation, so as to reduce enterprises′ dependence on external funds and financing costs. This shows that the government subsidy alleviates the capital constraint of enterprises and its effect is also marginally incremental. Therefore, the investment time and intensity of government subsidy need to be accurately controlled and further determined through establishment of targeted evaluation system and feedback mechanism, and the subsidy policy should be adjusted in a timely manner. 2) Appropriate government subsidy is more helpful to give full play to the relative competitive advantage of enterprises, but its effect is diminishing marginally. However, excessive increase of the amount of government subsidies will have a negative impact on the advantages of enterprises. Therefore, the subsidy policy should be more dynamic, in order to encourage other competitors to catch up with and surpass the enterprise, thus to form an innovative and competitive environment and an ecosystem conducive to innovation growth. 3) The policy simulation method can be used to establish a "digital portrait" describing the past innovation behaviors, to compare the behavior data of funded projects, to complete a deeper level of prior project selection. 4) Government subsidies also play a symbolic role in financing institutions. Therefore, in the formulation of policies, such symbolic influence should be considered to improve the participation of financing institutions. This will also reduce the crowding-out effect due to the dependence of enterprises on subsidies.

 

Key words:  government subsidy, financing constraint, technological innovation, sequential game

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