Work

Exploring the Impact of Government Subsidies on R&D Cost Behavior in the Chinese New Energy Vehicles Industry

Year: 2025

Type: article

Abstract: This study investigates whether government subsidies promote R&D cost stickiness in the new energy vehicle (NEV) industry in China—that is, whether public funding encourages firms to retain R&D resources even during periods of declining sales. While prior literature primarily explores the relationship between subsidies and R&D investment levels, it often overlooks firms’ financial position and dynamic cost behaviors. Given that R&D investment has high adjustment costs and is sensitive to cash flows, reductions in R&D spending during downturns may reflect managerial cost asymmetry rather than a crowding-out effect of subsidies. Moreover, government subsidies may serve as a signal of long-term market optimism, motivating managers to retain R&D resources during economic downturns. Using a panel dataset of 573 listed new energy vehicle (NEV) firms in China’s A-share market from 2007 to 2021, we construct a model based on the asymmetric cost behavior framework to empirically assess the impact of government subsidies on R&D cost stickiness. The results show that government subsidies significantly increase the degree of R&D cost stickiness. Serving as a signal of future market optimism, subsidies raise managerial expectations and incentivize decisions to retain R&D-related costs during economic downturns. This positive relationship is more pronounced in firms with high levels of green innovation, large-scale enterprises, and non-state-owned firms. These findings suggest that public funding alleviates managerial pressure to cut R&D expenses amid revenue declines, thereby supporting firms’ long-term innovation strategies. Our study contributes to the cost management literature by highlighting a novel channel through which subsidies influence managerial discretion under uncertainty. It also provides policy implications for the future phase-out of subsidies, emphasizing the need for complementary market mechanisms to sustain innovation investment, particularly for small, young, and financially constrained firms.

Source: Sustainability

DOI: 10.3390/su17104510

Authors: Qianqian Zhang, Dong-Il Kim

Institution: Pusan National University

Language: English

Topic: Innovation Policy and R&D

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Industry, innovation and infrastructure

Open Access status: gold

Estimated APC paid: $2,896