Visible hands: The impact of subsidy withdrawal on new energy vehicle enterprises’ innovation behaviors

Abstract

This study explores the impact of government subsidy withdrawal on firms' innovation behavior, focusing on China's new energy vehicle (NEV) industry. The sector provides a compelling case, having transitioned from significant government support to a gradual subsidy withdrawal. We begin by reviewing the industry's evolution and proposing theoretical hypotheses. Using a lasso model, we evaluate the overall policy effects of subsidy withdrawal. Subsequently, we test these hypotheses with a regression discontinuity design, based on data from Chinese-listed NEV manufacturers from 2009 to 2020. The findings highlight that the subsidy withdrawal significantly influenced firms' innovation strategies. In response, companies increased their R&D investment while reducing symbolic innovation activities, with the effect being more pronounced among non-state-owned enterprises. This study offers new insights into policy evaluation and provides strategic guidance for NEV firms navigating subsidy withdrawal.