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, Li Xie*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

74 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)241-259
Number of pages19
JournalSmall Business Economics
Volume52
Issue number1
DOIs
Publication statusPublished - 15 Jan 2019

Keywords

  • Certification
  • China
  • Financial constraints
  • Government R&D subsidies
  • IPR protection
  • Innovative entrepreneurial firms
  • Legitimacy

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