The more subsidies, the longer survival? Evidence from Chinese manufacturing firms

Qilin Mao and Jiayun Xu

Review of Development Economics, 2018, vol. 22, issue 2, 685-705

Abstract: How do government subsidies affect firm survival? By using Chinese firm†level data for 1998 to 2007, we show that, on average, there is a positive and significant impact of government subsidies on firm survival. We also investigate the heterogeneous effects of government subsidies with different intensities on firm survival, and find that moderate†intensity government subsidies exert a positive impact on firm survival, while high†intensity government subsidies increase the exit probabilities, the underlying mechanisms via subsidy†seeking investment and innovation incentive weakening are supported by empirical evidence. Furthermore, we explore the role of governance institutions in the subsidy–survival relationship, and find that the positive impact of government subsidies on firm survival is more pronounced in regions with better governance institutions.

Date: 2018
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