Government digital subsidies and corporate digital technology innovation: Evidence from Chinese listed companies

In the digital economy, corporate digital technology innovation is considered pivotal for reshaping industrial competitiveness and establishing national strategic advantages. Using data from China's A-share listed companies from 2007 to 2023, this study examines the influence of government digital subsidies on corporate digital technology innovation and its underlying mechanisms. Government digital subsidies are identified using the BERT language model. Meanwhile, International Patent Classification information is employed to discern digital patents, as a measure of corporate digital technology innovation. The findings reveal that government digital subsidies significantly stimulate corporate digital technology innovation, with this result remaining robust across multiple robustness checks and endogeneity controls. Mechanism analysis reveals three mechanisms: alleviating financing constraints, enhancing R&D willingness, and strengthening digital strategic deployment. Furthermore, government digital subsidies have significantly stronger effects on digital strategic deployment in firms with a CEO who has an IT background and firms with a high level of artificial intelligence application. Heterogeneity analysis reveals that the incentive effects are more pronounced in non-state-owned, growth stage, small firms, and firms located in regions with higher marketization levels or digital economic policy intensity. Further analysis shows that digital subsidies effectively promote both digital technology integration and pure digital technology innovations. However, digital innovation quality is negatively affected. This stems from the perverse “quantity-oriented” incentives of subsidies, which drives firms to prioritize application volume over technical depth. These findings contribute to government digital subsidy and digital innovation research while providing important implications for managers to achieve sustainability in the digital transformation context.