More government subsidies, more green innovation? The evidence from Chinese new energy vehicle enterprises

Innovation in the new energy vehicle industry provides essential opportunities for green transformation. This paper addresses several issues related to (1) the impacts of government subsidies on the innovation of Chinese new energy vehicle enterprises, (2) the heterogeneous sensitivity of innovation to government subsidies due to firms' ownership and location regions, (3) the spatial correlation of innovation, and (4) the impact of reducing subsidies. Using a dataset of Chinese new energy vehicle enterprises listed on the A-share market for the period of 2010–2019, we find a promoting effect of government subsidies on firms’ innovation. The promoting effect is greater in the private-owned firms and the central area. We also find that reducing government subsidies only negatively affects the innovation in the western region, and the positive influence of government subsidies is enhanced in the private-owned firms after the exposure of subsidy fraud. In terms of spatial effect, we do not find evidence for a positive spillover effect among companies. Our findings provide important implications for improving the effectiveness of subsidy policies in the new energy vehicle industry.