THE SIGNALING EFFECTS OF DIFFERENT TYPES OF R&D GRANTS ON CORPORATE EXTERNAL FINANCING: EVIDENCE FROM CHINESE LISTED FIRMS

In this study, we investigate the heterogeneous signaling effects of government research and development (R&D) grants on corporate bank financing regarding various types of grants. While the literature primarily focuses on the information asymmetry between banks and receivers, this study focuses on the more fundamental aspect of disparate signals sent from various types of subsidies. We categorize public R&D subsidies into three types: project-based, special grants and general subsidies. By using data from Chinese listed firms between 2008 and 2018, we find that R&D projects have positive certification effects on corporate external financing, special funds do not have significant effects, and general subsidies send negative signals regarding firm quality, resulting in the reduction of long-term bank loans of recipients. However, the negative signaling effects of general subsidies are found to be counteracted by political connections, suggesting that the signal associated with political capital could be greater than that associated with firm quality.