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Publications
Publications
  • 2018
  • Working Paper
  • HBS Working Paper Series

Corruption, Government Subsidies, and Innovation: Evidence from China

By: Lily Fang, Josh Lerner, Chaopeng Wu and Qi Zhang
  • Format:Print
  • | Language:English
  • | Pages:69
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Abstract

Governments are important financiers of private sector innovation. While these public funds can ease capital constraints and information asymmetries, they can also introduce political distortions. We empirically explore these issues for China, where a quarter of firms’ R&D expenditures come from government subsidies. Using a difference-in-differences approach, we find that the anti-corruption campaign that began in 2012 and the departures of local government officials responsible for innovation programs strengthened the relationship between firms’ historical innovative efficiency and subsequent subsidy awards and depressed the influence of their corruption-related expenditures. We also examine the impact of these changes: subsidies became significantly positively associated with future innovation after the anti-corruption campaign and the departure of government innovation officials.

Keywords

Crime And Corruption; Business And Government Relations; Innovation And Invention; China

Citation

Fang, Lily, Josh Lerner, Chaopeng Wu, and Qi Zhang. "Corruption, Government Subsidies, and Innovation: Evidence from China." Harvard Business School Working Paper, No. 19-031, September 2018.

Supplemental Information

Appendix to Working Paper 19-031
Corruption, Government Subsidies, and Innovation: Evidence from China - Internet Appendix
  • SSRN
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About The Author

Josh Lerner

Entrepreneurial Management
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More from the Authors
  • Fencing Off Silicon Valley: Cross-Border Venture Capital and Technology Spillovers By: Ufuk Akcigit, Sina T. Ates, Josh Lerner, Richard Townsend and Yulia Zhestkova
  • Venture Capital's Role in Financing Innovation: What We Know and How Much We Still Need to Learn By: Josh Lerner and Ramana Nanda
  • Two Case Studies on the Financing of Forest Conservation By: Andrew Baxter, Connor Cash, Josh Lerner and Ratnika Prasad
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