Does public subsidy promote sustainable innovation? The case of Chinese high-tech SMEs

Government public support is an important policy tool to support enterprises in carrying out innovation and R&D in China. However, there is a lack of systematic research on the effect of direct and indirect government support on the innovation ability of Chinese high-tech enterprises, especially the relatively weak SMEs. This paper aims to explore the impact of public support on sustainable innovation by SMEs in China and identify the differences, if any, between direct and indirect support. By using the survey data of 2600 Chinese SMEs, we found that government support significantly and positively impacts both innovation input and output. In particular, we found that R&D intensity acts as a mediator between direct government support and innovation output; however, indirect support did not exhibit a significant mediating effect. Additionally, it was found that innovative sales can promote innovation investment by alleviating financial constraints; this is known as sustainable innovation.