The certification effect of government R&D subsidies on innovative entrepreneurial firms’ access to bank finance: evidence from China

Li Li, Jean Chen, Hongli Gao and Li Xie ()
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Li Li: Nankai University
Jean Chen: Xian Jiaotong-Liverpool University
Hongli Gao: Nankai University
Li Xie: Xian Jiaotong-Liverpool University

Small Business Economics, 2019, vol. 52, issue 1, No 13, 259 pages

Abstract: Abstract In this paper, we argue that obtaining government R&D subsidies has a certification effect and is used by innovative entrepreneurial firms as a legitimation strategy to access bank finance. We extend the extant literature on the certification effect by combining legitimacy theory with information asymmetry to build our theoretical framework. We test our theoretical model under China’s unique institutional setting, in particular, the weak intellectual property rights (IPR) protection. Using 549 listed and 192 unlisted Chinese innovative entrepreneurial firms from 2009 to 2013, we find a positive certification effect on the acquisition of bank loans for all those sample firms. This positive effect is more profound in unlisted firms in our sample than the listed ones. We further find that regional variation of IPR protection has a moderating effect on the effectiveness of the certification. The certification effect is more significant in those regions where IPR protection is weaker.

Keywords: Legitimacy; Certification; Financial constraints; Innovative entrepreneurial firms; Government R&D subsidies; IPR protection; China (search for similar items in EconPapers)
JEL-codes: G28 H25 L26 O34 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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DOI: 10.1007/s11187-018-0024-6

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