The more the merrier? Chinese government R&D subsidies, dependence, and firm innovation performance

With the understanding that innovation and high technology industries are essential for sustained economic development, government R&D subsidies have become ubiquitous. However, existing studies on the impact of R&D subsidies have found mixed or conflicting results. Insights from resource dependence theory (RDT) and the Attention-Based View (ABV) help account for these discrepancies. This study of Chinese high technology firms using the Innovation-Oriented Firms Database from the Ministry of Science and Technology, finds an inverted U-shaped relationship between R&D subsidies and innovation performance. The article shows that high government resource dependency, expressed through high percentage of R&D spending coming from government subsidies, diverts attention resources in recipient firms and results in declining innovation performance. The article then tests the impacts of different managerial responses on the dependency-innovation relationship and find that technology alliances and employee feedback systems mitigate these negative effects. These findings have implications for government innovation policies and firm-level responses to those policies: government subsidy policies have limits to their effectiveness and firms have strategic options for capitalizing on government resources without sacrificing innovativeness.