The efficiency of corporate R&D investments: Information‐sharing and government subsidies

Zhaohua Li and Takeshi Yamada

International Review of Finance, 2025, vol. 25, issue 1

Abstract: We compare the impact of broad‐based equity incentives and government R&D subsidies on the efficiency of corporate innovation. Chinese corporations that offer broad‐based incentives for employees and managers demonstrate greater R&D investment efficiency, as evidenced by a higher ratio of innovation outputs to cost allocation. Conversely, firms receiving government R&D subsidies demonstrate lower efficiency. Accounting for endogenous treatments in a multi‐treatment framework, we suggest an information‐sharing environment is critical for efficient capital allocation. Government agencies will likely provide subsidies based on information different from what firm headquarters might have, while broad‐based incentive programs encourage employee coordination, enhancing efficiency and project quality. To signal project quality, firms with broad‐based incentives capitalize a higher proportion of R&D costs than subsidized firms. We also find that combining broad‐based incentives and subsidies might not create synergies.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/irfi.70011

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:irvfin:v:25:y:2025:i:1:n:e70011

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1369-412X

Access Statistics for this article

International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

More articles in International Review of Finance from International Review of Finance Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().