# Can government-guided funds promote innovation output in strategic emerging enterprises? Evidence from China

## TL;DR

This study finds that government-guided funds in China boost innovation in strategic emerging enterprises, especially in certain regions and company types.

## Contribution

The paper provides new empirical evidence on how government-guided funds influence corporate innovation in strategic emerging enterprises in China.

## Key findings

- Government-guided funds are positively correlated with innovation output in strategic emerging enterprises.
- The funds enhance innovation by easing R&D financing and improving access to policy resources like tax incentives.
- The effect is stronger in eastern regions, state-owned enterprises, and companies with high capital intensity from downstream customers.

## Abstract

Using 9,138 observations from 731 strategic emerging enterprises in China’s A-share market between 2010 and 2023, this study explores the impact of government-guided funds on innovation in these enterprises and their underlying mechanisms. The main empirical findings are as follows: Firstly, there is a positive correlation between government-guided funds and innovation output in strategic emerging enterprises, and their endogeneity and robustness have been tested using instrumental variable methods and a series of other methods. Secondly, government-guided funds significantly enhance corporate innovation output through two pathways: one is by alleviating financing constraints on technological R&D; the other is by enhancing companies’ ability to access policy resources such as tax incentives. Thirdly, heterogeneity tests indicate that the innovative incentive effect of government-guided funds is more pronounced in eastern regions, state-owned enterprises, and companies with higher capital intensity from downstream customers. This study focuses on strategic emerging enterprises, providing a new perspective on the impact of government-guided funds on corporate innovation.