The signal effect of Government R&D Subsidies in China: Does ownership matter?

•The impact of different ownership nature to the signal/certification effect is tested.•Empirical evidence is based on Chinese listed corporations from 2009 to 2013.•SOEs can receive more subsidies than private enterprises in China.•The signal effect of R&D grants is stronger in private enterprises than that in SOEs.•The ownership nature does matter in the R&D subsidies certification effect.

R&D subsidies as a policy instrument are used to reduce market failure, apart from its input and output additionality, the notion of behavioural additionality has caused increasingly interest. We focus on the signal/certification effect of behavioural additionality, which means that government grants may serve as a signal for private investors. The signal effect is a certification enhancing a firm's access to external finance. The objective is to examine the impact of different ownership nature to the signal/certification effect. We use data on Chinese listed corporations from 2009 to 2013. The results show that receiving R&D subsidies increases the likelihood that firms will raise external finance, and the state-owned enterprises can receive more subsidies than private enterprises. However, the signal effect of R&D grants is stronger in private enterprises than that in state-owned enterprises of China, indicating that the ownership nature does matter in the R&D subsidies certification effect. This paper enriches current literature of government R&D subsidies by providing empirical evidences in Chinese mixed market.