Research on Innovation Signals and Feedbacks between SMEs and the Government

Feng Xiao, Meng Weidong and Huang Bo ()
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Feng Xiao: School of Economics and Business Administration, Chongqing University, Chongqing, China
Meng Weidong: School of Economics and Business Administration, Chongqing University, Chongqing, China
Huang Bo: School of Economics and Business Administration, Chongqing University, Chongqing, China

Entrepreneurship Research Journal, 2021, vol. 11, issue 2, 71-98

Abstract: Due to the financing constraint that faced by small and medium-sized enterprises (SMEs), SMEs are more cautious in innovation investments, and thus more eager to gain external financial support. This paper discusses the impact of SMEs’ R&D investment on government subsidy under the constraint of hidden information. It adopts a modified endogenous switching regression model to solve the endogenous problems. The results show that SME’s initiative to signal its underlying innovative capacity has an important impact on Chinese government’s subsidy feedback. SMEs that send high-type signals have gained more subsidies. And when SMEs are with different types of innovation signals, they would have different influence mechanisms on subsidy feedback. This study concludes that the policymakers should make more use of its belief and give effective feedbacks to the entrepreneurs.

Keywords: signaling theory; SMEs; R&D investment; government subsidy; endogenous switching regression model (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/erj-2020-0169

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