Do government subsidies promote enterprise innovation?——Evidence from Chinese listed companies

The original intention of the government was to provide financial subsidies to firms by implementing innovation support policies. In turn, this will encourage these firms to carry out technological innovation activities. However, there are still differing views in the academic community on whether government subsidies have a stimulating effect or a crowding-out effect on enterprise innovation. The theoretical and empirical research conclusions are uncertain. In this study, samples unlisted companies in the Shanghai and Shenzhen A-share markets in China from 2012 to 2020. The entrepreneurial spirit is the entry point to empirically testing the impact of government subsidies on enterprise innovation under financial constraints. The research results show how government subsidies have a significant stimulating impact on enterprise technological innovation activities. More subsidies don't necessarily mean better results because research shows an inverted U-shape. Entrepreneurial spirit plays a significant moderating role in transmitting and optimizing the driving effect of government subsidies. Further heterogeneity analysis shows that government subsidies and entrepreneurial spirit have different driving and moderating effects on the innovation of enterprises with differing natures and scales depending on the region. From a regional perspective, eastern enterprises are better suited in optimizing government subsidies to stimulate enterprise innovation. From the perspective of enterprise nature, private enterprises are more motivated and better able to optimize government subsidies than state-owned enterprises. Regarding enterprise scale, small and medium-sized enterprises can more efficiently optimize government subsidies to stimulate enterprise innovation than large enterprises. The contribution of this paper is to expand the understanding of the impact of government subsidies on enterprise innovation activities.