The efficiency of corporate R&D investments: Information-sharing and government subsidies

We compare the impact of broad-based equity incentives and government R&D subsidies on the efficiency of corporate innovation. Chinese corporations that offer broad-based incentives for employees and managers demonstrate greater R&D investment efficiency, as evidenced by a higher ratio of innovation outputs to cost allocation. Conversely, firms receiving government R&D subsidies demonstrate lower efficiency. Accounting for endogenous treatments in a multi-treatment framework, we suggest an information-sharing environment is critical for efficient capital allocation. Government agencies will likely provide subsidies based on information different from what firm headquarters might have, while broad-based incentive programs encourage employee coordination, enhancing efficiency and project quality. To signal project quality, firms with broad-based incentives capitalize a higher proportion of R&D costs than subsidized firms. We also find that combining broad-based incentives and subsidies might not create synergies.