The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1469-1930.htm

How does government support Government

support and
promote firms’ intellectual capital? firms’ intellectual
capital
An empirical analysis of
micro-mechanisms
Zhongjuan Sun Received 29 July 2020
Revised 23 November 2020
College of Business Administration, Capital University of Economics and Business, 25 December 2020
Beijing, China Accepted 30 December 2020

Massimiliano Matteo Pellegrini

Department of Management and Law, University of Rome Tor Vergata,
Rome, Italy, and
Cizhi Wang and Zhu Yu
College of Business Administration, Capital University of Economics and Business,
Beijing, China

Abstract
Purpose – In transitional economies, government support (GS) is considered to influence the development of
the economy and industries and, consequentially, firms’ intellectual capital (IC). However, empirical research
has yet to explore the micro-mechanisms through which GS operates. Hence, the purpose of this study is to
conduct an empirical inquiry into the specific role of GS on IC, considering the mediating effect of firm
operational performance (OP).
Design/methodology/approach – Combining the institution-based theory, the resource orchestration
paradigm and a dynamic perspective on IC, a new framework is constructed to evaluate the direct and indirect
relationships existing among GS policies, firms’ operational performance and IC. These processes and their
outcomes are evaluated using mediating models with three steps and a panel regression based on panel data
from 3,211 high-tech companies operating in China from 2008 to 2015.
Findings – Empirical findings confirm the existence of a significant direct relation between GS and IC and also
suggest a mediating effect through operational performance.
Originality/value – (1) GS can be considered an institutional signal that boosts the attractiveness of a firm,
thus enabling it to hire talent (human capital), build a wide network of relationships in the ecosystem (structural
capital) and enhance its current relationships with financial service institutions and other stakeholders
(relational capital). (2) This study, which considers GS an external resource, is one of the first attempts to
explore how external resources influence firms’ IC development through institutional pressures and
mechanisms. The study confirms that multiple strategies exist through which government authorities and
policymakers can influence firms’ IC and in particular a combination of institutional factors and firm’s
resources and capabilities.
Keywords Intellectual capital, Government support, IC development, Public policies, China
Paper type Research paper

The authors would like to thank the generous funding from the National Natural Science Foundation of
China (Project No. 71602127 and 71573148) and by the British Academy (Grant No: SG122404). This
paper is also supported by the Ministry of Science and Technology of the People’s Republic of China
(Project No. 2017ZG-002), Beijing Social Science Fund Project (Grants 18GLA003), Project for the Top
Young Team consisting of Outstanding Talents of Beijing (Grant 2017000026833TD01), the Journal of Intellectual Capital
Fundamental Research Funds for the Beijing Municipal Colleges and Universities in Capital © Emerald Publishing Limited
1469-1930
University of Economics and Business (Grant XRZ2020012). DOI 10.1108/JIC-07-2020-0260
JIC 1. Introduction
In transitional economies, such as China and other countries of the ex-Soviet Union block,
government policy is deemed a key driver for the development of the whole economic system
and also in relation to private firms’ development. Instead of direct intervention by the state in
these economies, public action tends to adopt a less “invasive” approach using government
support (GS) to gradually mitigate and fill institutional voids left by the state during the
transition from a planned economy to a well-developed market (Khanna and Yafeh, 2007;
Peng and Heath, 1996). Thus, GS seems particularly appropriate to develop emerging or
technologically advanced industries (Peng et al., 2008) and regional or local ecosystems
(Kleer, 2010; Yan and Li, 2018), or to control and monitor strategic industries and sectors
(Armanios et al., 2017).
However, while the benefits of GS have been thoroughly examined at the macro level, for
example, the development of whole industries (Joia, 2008; Senor and Singer, 2011), how GS
affects individual firms’ intellectual capital (IC) at the micro level has been less studied,
especially in terms of the micro-mechanisms of development and the accumulation of IC
change from a dynamic perspective (Barbieri et al., 2010). IC refers to an aggregation of
knowledge and competencies of employees that can produce competitive advantage for an
organisation. According to a widely agreed theoretical definition (Kianto et al., 2014), IC is
composed of three sub-types: human capital (HC), for example, employees’ skills and
competences; structural capital (SC), for example, information and communications
technology infrastructure; and relational capital (RC), for example, the knowledge
embedded in and strengths of relationships. Namely, HC can be considered the stock of
employees’ extant skills and competences, and SC and RC can promote the knowledge flow in
the organisation, given that better communication and a closer relationship between
employees is beneficial to the knowledge exchange between them. However, the extant
studies on IC development have paid insufficient attention to the impact of external resources,
such as IC, on IC development. Therefore, this study addresses the following research
questions: Is GS an effective instrument to support firm IC development? If so, what are the
specific mechanisms through which GS influences firms’ IC?
In particular, more attention should be paid to the type of government intervention
implemented, since GS can be provided through several initiatives, and how these extra
resources are effectively employed and integrated by firms. Regarding the first consideration,
the “supply side” of GS is the provision to firms of strategic resources and inputs (e.g. public
funds, research and development [R&D] subsidies); in contrast, the “demand side” of GS is an
increased placement within the market of firms’ products, services and outputs (e.g.
government procurement) (Guo et al., 2016).
Regarding the second consideration, resources provided by GS alone are not a panacea for
firm and IC development. GS, as an external factor, needs to be adapted and blended into the
resource base of a firm to stimulate the desired impacts effectively (Roos and O’Connor, 2015).
Thus, companies are required to have certain capabilities to integrate and exploit resources
offered by the different types of GS (Cheng et al., 2010). Usually, the operational performance
(OP) may represent the outcomes of such an ability over a certain period (Wang et al., 2014).
Thus, there might be a missing interactive mechanism that explains firms’ IC upgrading.
Accordingly, this paper aims to elucidate the interplay among specific types of GS, firm OP
and IC. To do so, the study is based on multiple mediating regressions using a large panel
data set of 3,211 Chinese high-tech companies.
The findings of the research confirm that in transitional economies with potential
underdeveloped institutional actors and ecosystems, GS received by private companies
directly enhances their IC; however, a greater impact is achieved when their OP also rises,
resulting in overall higher levels of IC. This contributes to the theory in several ways. First,
the institution-based theory is extended by demonstrating the important, yet under-
investigated, role of GS in developing IC at the micro level of the individual firms. Second, this Government
study specifically inquiries into the micro-mechanisms through which GS can stimulate IC, support and
specifically referring to the supply-side and demand-side of GS interventions and to the
mediation role of OP in relation to firms’ IC upgrading.
firms’ intellectual
The remainder of the paper is arranged as follows. Using the institution-based theory, capital
resource orchestration theory and dynamic IC perspective, Section 2 presents assumptions
about the mechanisms that explain how GS affects IC. Section 3 presents the research method,
comprising sample and data collection, measurements and models. Section 4 outlines the
empirical results of the hypothesis testing. Last, Section 5 presents conclusions, contributions
to theory and the managerial implications of the study.

2. Theoretical background and hypotheses development

2.1 Intellectual capital development in transitional economies
Increasingly over the past decades, IC has been viewed from a dynamic perspective that
considers how knowledge emerges from ongoing interactions among organisational factors
and how to leverage, develop and change both intangible assets and managerial capabilities
for value creation (Helfat and Peteraf, 2015). However, while a growing number of scholars
have begun to pay more attention to IC’s impact on firms’ sustainable competitive advantage
and superior performance (Schuler et al., 2002), limited research has been conducted on
elements promoting the development of a firm’s IC and how it changes dynamically. Thus,
there has been a call for further inquiry into factors that may facilitate its accumulation
(Wang, 2010).
The study explores this specific aspect in the context of transitional economies employing
an institutional framework (Peng and Heath, 1996). A transitional economy can be considered
a former completely planned economy that is transitioning into a market economy or into any
kind of freer economic form. The progressive withdrawal of the state from the economy
leaves institutional voids – a situation in which the private initiative is unable to develop fully
a “market space” because of the lack of completely justifiable levels of investment according
to standard market logic (Mody, 1996). This is particularly true for those industries that
require long periods of investment with uncertain returns, such as heavy industries or
emergent and advanced technology sectors.
According to institution-based theory, GS can mitigate such market voids by fostering
factor markets, optimising industry distribution and enhancing national competitiveness
(Chen et al., 2019; Flammer, 2018; Meyer and Peng, 2016; Peng and Heath, 1996; Peng et al.,
2008, 2009, 2018). Indeed, GS fulfils two opposite rationales. It satisfies a public interest to
keep meeting the urgent needs of a country by strengthening national security, increasing
national competitiveness or fostering advanced technologies (Porter, 1998). In contrast, GS
can make a certain industry or project more appealing to attract attention of private action
(Wonglimpiyarat, 2006). Therefore, it is not uncommon to find GS distributed among projects
or firms that have the potential to contribute to the development of public and national
economic interests (Z
~iga-Vicente et al., 2014). This “stimulated” or “enhanced” certain
un
industry or project will attract more talent, appeal to firms and produce technological
advancements, thereby fostering IC accumulation in the whole industry. In particular,
government policies and GS may facilitate the development of IC in several ways: through the
creation of infrastructures in the digital world to circulate goods and information (Patanakul,
2014); through workforce training and development to enhance the HC available in an
industry (employees’ skills and competences) (Schuler et al., 2002); and through SC building
(networking with local business community, or other communication channels) to support
collaboration among enterprises, universities and other partners, which, in turn, promotes the
stabilisation of RC (relational ties and the strength of such relationships) (Kang and
Park, 2012).
JIC In particular, in transitional economies, IC refers to the resources and capabilities of a firm
that are likely to enable it to secure patents and intellectual property rights, which, in turn,
would enable both the firm and the nation to build core competitiveness. For several reasons,
China may be the perfect empirical context to study the GS effect. First, China has employed a
dual-track approach to its market transition; that is, it is liberalising the market by removing
its complete central planning system but is retaining government control (Guo et al., 2016).
Therefore, the GS policy offers an important method for many firms to obtain resources and
potentially achieve a competitive advantage. Second, Chinese firms differ from their foreign
counterparts because they may lack firm-specific intangible assets and a consolidated IC
(Filatotchev et al., 2011). Therefore, they tend to lag behind foreign firms in terms of their IC
level. However, Chinese firms have largely resorted to government policies and specific GS to
compensate for this lack and to catch up with global players (Zhou et al., 2019). Third, Chinese
firms have a long tradition of depending on GS (e.g. guanxi), and thus, GS functions as an
alternative enforcement mechanism (Zhou et al., 2019). These unique characteristics of China
provide an ideal research setting to investigate how both GS and firm OP jointly affect the
upgrading of firm IC.
Concrete examples of this intervention in China are specific “economic zones”, called
“demonstration zones”, which are industrial development clusters where the government
focuses on several levels of intervention to stimulate specific industries, mostly tech-intense
sectors. The demonstration zones are granted a special tax policy and financial aid, and the
government promotes public contracts for firms and projects within them (Hung and Chu,
2006). For these reasons, enterprises in these sectors are encouraged to install headquarters or
branches in the zones, and this forms lively clusters with an active knowledge transfer
process and the emergence of multiple consortia (Filatotchev et al., 2011). One of these zones is
the Zhongguancun (ZGC) National Independent Innovation Demonstration Zone (MOST,
1988). In this area, the Chinese government intentionally gathered universities, research
centres, incubators, entrepreneurs and private companies to develop information technology,
the internet of Things, 5G and other emergent technologies (General Office of the State
Council of the People’s Republic of China [PRC], 1995).
Nevertheless, similar examples can be found around the globe in developing and
developed countries alike. Through the agglomeration of scientific and technological
research and the development of supporting policies and funding schemes, the Israeli
government has promoted its unique model for a “Second Silicon Valley” (Senor and
Singer, 2011).

2.2 Government support and micro-mechanisms to stimulate intellectual capital

development
As premised in the introduction, knowledge is currently lacking about how GS can boost IC at
the micro level and thus at the individual firm level (Joia, 2008; Senor and Singer, 2011). The
research design considers GS of two types, namely, the supply-side and the demand-side of
government intervention. In more detail, the supply side of GS may be understood as the
provision of extra funds and/or technology resources not available in the market that can
improve firms’ ICT infrastructure and overall OP (Guerzoni and Raiteri, 2015). Moreover,
supply-side GS can also be related to intangible resource provision, such as releasing a
positive signalling effect to promote firm reputation and thus help establish social networks
more effectively (Kleer, 2010). Conversely, as an actor in the market, the government may
sustain consumption through public demand by purchasing products and services from
private firms or outsourcing public projects and infrastructures – what can be termed
government procurement (Di Stefano et al., 2012). This demand not only increases revenue
volumes for private firms but also leads to better standard requirements, stimulating an
upgrade of both technical and human resources (Nicholas and Fruhmann, 2014).
 The GS is distinguished into two types to compare its relative effects on firm IC, which, as Government
premised, comprises three elements: HC, SC and RC. HC is the totality of employees’ support and
competence, knowledge, skills, innovativeness, attitudes, commitment, wisdom and
experience (Bontis and Serenko, 2007). This represents the individual knowledge stock of
firms’ intellectual
an organisation, including tacit knowledge, experience and other personal values. SC refers to capital
non-human or technical knowledge possessed by an organisation and is known to include
databases, organisational charts, process instructions, strategies, software systems, supply
chains and anything that provides a firm with a perceived increased value over the mere
tangible assets it represents (Garanina et al., 2016). RC is the knowledge embedded in
relationships with customers, suppliers, industry associations and other stakeholders who
may influence the organisational life, create value and enhance organisational functioning
(Bontis and Serenko, 2007).
Previous empirical studies have already examined the effectiveness of different types of
GS used to stimulate such aspects as innovation performance, for example, direct R&D
subsidies, tax incentives, public research performed in public agencies, and knowledge
transfer from universities and R&D consortia (Xu et al., 2014). However, these studies have
not explored GS as an external factor that therefore needs to be adapted and blended into the
resources base of a firm to stimulate the desired impacts effectively (Roos and
O’Connor, 2015).
The transformation of GS into a firm’s IC involves managing the integration process of
resources, which can be interpreted according to resource orchestration theory (Sirmon et al.,
2011). First, resource orchestration theory emphasises the managerial actions and processes
of managing resources, rather than the value and scarcity of resources, as in a pure resource-
based theory approach (Sirmon et al., 2011). Then, these managerial actions revolve around
three processes: acquiring and accumulating resources to structure them into a portfolio;
stabilising and enriching resources to bundle them into the firm’s capabilities; and mobilising
and coordinating resources to leverage capabilities according to the dynamics of the market
environment (Sirmon et al., 2011). Thus, it is reasonable to say that from the perspective of the
orchestration of a firm’s resources and capabilities, GS can also induce promotion
mechanisms of IC through a firm’s OP.
In fact, the transformation of GS into a firm’s IC involves managing the inputs and
blending them with organisational factors and managerial capabilities (Kianto, 2007). This
process should result in an OP that is achievable only through effective integration of
resources and capabilities available for a firm (Cheng et al., 2010). GS could be understood as
an extra supply of firm resources or an extended demand for firm products or technologies
(Xu et al., 2014). Moreover, the better the OP, the stronger are the resources provided by GS
absorbed and integrated and, in turn, re-invested into more IC. Thus, OP may play a mediator
between GS and firms’ IC. This aspect has been neglected so far in the existing research
(Carayannis et al., 2014).
Acknowledging all these considerations, this study proposes a theoretical model to
analyse the effects of GS on IC, as shown in Figure 1. First, GS may directly influence firm IC

Supply-side Intellectual Capital

GS
Structural capital
Operational
Performance Relational capital

Demand-side
Figure 1.
GS Human capital Hypotheses model
JIC via supply- or demand-side institutional factors (Guo et al., 2016). Second, the OP of a firm
may mediate the impacts of GS on firms’ IC development.

2.3 The direct effect of government support on intellectual capital

Government policy and intervention is a central market element in transitional economies
and thus is also central for institution-based theory (Peng and Luo, 2000; Peng, 2003).
Specifically, supply and demand policies are two important paths of GS (Di Stefano et al.,
2012). Supply-side GS is a major practice in many countries – transitional or developed
economies alike (Fabrizio et al., 2017). This type of government engagement often emerges as
a mechanism to respond to market failures, including externalities, information asymmetry
issues and underinvestment in the market (Peng et al., 2008). Empirical findings on the effects
of supply-side GS are significantly positive since government-subsidised firms can achieve
faster growth, access other external finance sources and invest more heavily in R&D
activities (Aerts and Schmidt, 2008).
Specifically, supply-side GS seems to promote firm IC mainly and directly by expanding
the “inputs” available for the firm as core resources and capabilities. For example, supply-side
GS such as government subsidies directly affects and increases the technology inputs of
enterprises by providing access to technological means through direct subsidies (Fabrizio
et al., 2017) and cooperative funds (Kalcheva et al., 2018). GS may provide enterprises with
additional resources that, in turn, can enable them to engage in innovation activities (Guo
et al., 2016), to reduce the marginal costs and risks of R&D, to extend firm size and to improve
business performance (Zhou et al., 2019). Hence, GS may be related to the technological
foundations, technology networks, and absorption and integration capacities of enterprises.
Thus, it is possible to state that:
H1a. Supply-side government support is positively related to the firm’s structural
capital.
In addition, supply-side support, in the form of government funds, may also affect and
promote organisational HC. To obtain access to government funds, enterprises are often
asked to participate in cooperative R&D consortia and industrial innovation and
development programs to communicate and cooperate with other actors of the ecosystem,
thereby facilitating knowledge transfer and diffusion (Carayannis et al., 2014). This major
involvement in external networks also expands channels for employees to obtain
information, which improves their learning opportunities and rapidly allows them to
accumulate and improve their knowledge and skills (Pellegrini et al., 2020). In turn, this
increases the overall absorptive capacity of the firm. Hence, it can be proposed the following:
H1b. Supply-side government support is positively related to the firm’s human capital.
Third, supply-side GS may also be related to relationship improvement and thus
organisational RC. As premised, accessing GS is a catalyser to establishing a stronger
customer network and even to building a large nexus of relationships in the ecosystem,
including suppliers, dealers, financial service institutions and other stakeholders, all of which
greatly improve the extent of cooperation between a company and its external stakeholders
(Bontis and Serenko, 2007).
At the same time, obtaining GS usually signalises a positive situation of solidity or a
fulfilment of high standards (Yan and Li, 2018). This effect stimulates upstream and
downstream partnerships, alliances and cooperation relationships, thus enhancing the value
creation ability and the quality of the RC. Thus, it is hypothesised:
H1c. Supply-side government support is positively related to the firm’s relational capital.
Similarly, demand-side GS, mainly expressed through government procurement, is a key Government
component of market demand in transitional economies, and therefore it can sensibly alter the support and
overall economic curve (Di Stefano et al., 2012). This constitutes significant business
opportunities, not only in relation to the volume driven by this type of demand but also by
firms’ intellectual
producing again a signalling effect (Kleer, 2010). Government procurement of goods and capital
services accounts for approximately 15–20% of gross domestic product in developed and
developing countries, and in many countries, this percentage is much higher (Flammer, 2018).
Like large business customers, government procurement has strict and high product and
service standards and process requirements, which significantly encourage the internal
development of a firm to abide by such standards (Walker and Phillips, 2009). This
improvement may also require the allocation of corresponding qualified technical personnel
for R&D as well as professional management figures. Therefore, government procurement
results in the upgrading of firms’ HC driven by demand requirements. Thus, the study
hypothesises:
H2a. Demand-side government support is positively related to the firm’s human capital.
Concurrently, to implement government procurement projects and undertake the tasks of
production and supply within a reasonable time, focal firms often need additional or newly
developed processes (Walker and Phillips, 2009). For this, firms need to invest in, for example,
ICT infrastructure such as computer software and hardware, or to improve their systems of
production, supply chain management and knowledge management, promoting different
aspects of enterprise innovation (Nicholas and Fruhmann, 2014). All this leads directly to the
growth and quality improvement of SC. Hence, to sum up:
H2b. Demand-side government support is positively related to the firm’s structural
capital.
In a transitional economy, firm strategies and relationship building are greatly affected by a
series of unstable characteristics of the economic system (Patel, 2011), such as lack of
institutional elements (e.g. shortage of skilled labour, weak capital market, infrastructure
problems), unclear definitions of property rights and rapid economic oscillations. In this
process, obtaining government procurement facilitates a firm’s access to external financing
because this provides a positive signal of the firm’s qualities. In addition, obtaining GS in the
form of supplying government procurement is assumed to involve guarantees and protection
from politicians, which in turn can enhance firms’ access to external financing, such as
Guanxi (Yan and Li, 2018). This can support a company by sending a positive signal to the
market about “being in business with the government”, and, thus, the company may gain
legitimacy and positive financial and credit guarantees (Park and Luo, 2001). Moreover,
suppliers that have been awarded contracts in the past and fulfilled them successfully can
earn the government’s trust and are likely to have an advantage in future bids over new
suppliers (Flammer, 2018). Therefore, this may also increase the willingness of other
enterprises to cooperate (Kleer, 2010). Accordingly, it is possible to hypothesise that:
H2c. Demand-side government support is positively related to the firm’s relational
capital.

2.4 Firm’s operational performance as a mediator

OP indicates the degree to which an organisation utilises all of its assets in a certain period
(Wang et al., 2014). The concept also reflects a firm’s underlying capability to adapt to its
environment, control quality and costs, integrate resources and finally renew competitive
advantage (Cheng et al., 2010).
JIC Hence, companies can formulate better strategic allocation of resources and capabilities to
improve firm IC and its components. Specifically, (1) companies with robust OP promote HC
because more available resources can be invested in recruiting and attracting skilled
employees, thereby improving knowledge acquisition (Teece et al., 1997). The same applies to
internal knowledge management processes: extensive training can be employed to cultivate
the knowledge and abilities of existing employees (Pellegrini et al., 2020). Moreover, highly
skilled talents have greater expectations of their own career pursuit and self-motivation. (2)
Companies with robust OP promote SC since sufficient OP resources can enable enterprises to
design and adopt efficient and relevant internal infrastructure, such as information systems
to support business operations, and cooperation and knowledge sharing among employees
(Pellegrini et al., 2020). In addition, enterprises with high OP may develop more standardised
management routines and learning processes that can favour the accumulation of knowledge
in databases and organisational memory (Figueiredo, 2002). (3) Finally, RC can also be
positively affected. A more solid ICT infrastructure, while promoting internal knowledge
sharing, externally may provide the opportunity to build new cooperative relationships,
customer relationships and political connections (Chen et al., 2004), as well as fresh resources
to invest in those growing relationships. Increased information transmission may also reduce
information asymmetry with customers and, in turn, improve customer satisfaction and
customer capital (Schneider et al., 2005).
For all these reasons, a strengthening of OP may result in an upgraded IC, which may
derive from GS (Zhou et al., 2019). Thus, in this study hypothesised through the mediation of
the OP (Roos and O’Connor, 2015).
Specifically, in relation to the study conceptualisation of GS, supply-side GS results in
additional funding sources and external investments to complement the internal resources,
and this improves the possibility of good OP, the expansion of allocable resources and
enterprise scale, and increased innovation (Fabrizio et al., 2017).
Therefore, in transitional economies such as China, supply-side GS enables firms to
expand their operational activities; in turn, this can enhance firms’ performance and
contribute to their IC. Consequently, supply-side GS may indirectly affect IC through the
mediation of OP. Thus, the study hypothesises:
H3. A firm’s operational performance positively mediates the relationship between
supply-side government support and the firm’s IC components, specifically human
capital (H3a), structural capital (H3b) and relational capital (H3c).
Regarding demand-side GS, the focal enterprises directly obtain positive OP usually because
of large scale projects that involve securing a deal with the government (Cheng et al., 2010).
This provides the firm with abundant resources employable for developing product and
process innovations and organisational learning. At the same time, the positive signal of
working with the government may provide new market opportunities. Consistent with the
discussion presented in the previous paragraph regarding the role of OP, this increase can
realise the upgrading of IC, and thus the demand-side of GS is also hypothesised to have an
indirect and mediated effect on IC:
H4. A firm’s operational performance positively mediates the relationship between its
demand-side government support and firm intellectual capital components,
specifically human capital (H4a), structural capital (H4b) and relational capital (H4c).

3. Methodology
3.1 Sample and data sources
This study uses the “Innovative Firm Database” collected directly from the Ministry of
Science and Technology of China (MOST) from 2005 to 2015. The status of an “innovative
firm” is certified directly by the MOST and based on the fulfilment of specific parameters. The Government
database provides a large number of information on these firms; the MOST database is support and
composed by 293 parameters allocated in six thematic sections: (1) firm basic information (51
parameters, e.g. name, location, specific industry classification); (2) main products and related
firms’ intellectual
indicators (16 parameters, e.g. main product names, technical descriptions, and quality capital
standards); (3) science and technology projects (11 parameters, e.g. type of GS intervention
received and its amount per year, advancements, time allocation of project workforce,
expenditures), (4) scientific and technological (S&T) activities (67 parameters, e.g. total
workforce involved in S&T, total amount of raised funds for S&T, value of S&T activities); (5)
information about human resources (33 parameters, e.g. number of employees and several
workforce demographics such as education, age, working experience, position); and (6)
production, operation and finance (115 parameters, e.g. prime operating revenues,
administration expenses, total operating revenues, sale expenses, total import and export
transactions, total employees’ wages).
Having access to the whole data set in the same public database increases the reliability of
the study because there is no need for complex composition of information from different
sources. Across the database, the researchers were able to isolate a panel data sample of 3,211
high-tech companies that continued to operate from 2008 to 2015 clustered in the ZGC, after
removing a small portion of records for missing relevant values. The panel data analysis is
especially useful in this study because it accounts for a time effect of different types of GS on
IC in a firm. Considering the total amount of both demand- and supply-side GS allocated to
each firm, in respect of their different sizes, those values are relatively similar each year. This
shows that GS policy is consistent and a stable source of finance for the whole system.
However, the numbers of innovative firms change every year. More precise details about
statics of the sample data used in this study extracted from the MOST database are presented
in Table A1 (located in Appendix).
ZGC in particular is one of China’s leading demonstration zones and attracts several top
Chinese firms in the computer, semiconductor and telecommunications industries, which
have grown at an incredible speed over the past 30 years. New start-ups and established firms
in high-tech industries may settle in the ZGC zone, as long as they meet the national industrial
planning and development goals, enjoy public funds and R&D subsidies or provide products
or services directly to the government. This is an ideal research context in which to study IC
for several reasons: (1) As one of the earliest high-tech demonstration zones established in
China, ZGC zone’s annual revenue far exceeds that of other similar zones, and its development
is relatively mature; (2) High-tech enterprises included in this industrial cluster are usually of
a large size and accumulate a considerable amount of IC; (3) As premised, to be permitted to
settle in the ZGC zone, many of these enterprises benefit from GS by reason of protecting or
fulfilling a public interest. Thus, this GS provision is evaluated on its potential to deliver
rather than on an already proved ability to achieve results. Accordingly, it is more reasonable
to hypothesise a relation that moves from GS to IC.

3.2 Measurement
3.2.1 Dependent variable. According to Stewart (1997), IC refers to an aggregation of all
knowledge and competencies of a firm and its employees that can bring about competitive
advantage for an organisation. IC and its components in this study are represented with the
following proxies according to previous studies: HC is represented by the logarithm of the
ratio of prime operating revenue to total number of employees (Liu et al., 2009); SC instead is
measured by the logarithm of the ratio of administration expenses to total operating revenue
(Hsu and Wang, 2012). Finally, RC is the logarithm of the ratio of sales and general and
administration expenses to total assets (Scafarto et al., 2016). To illustrate clearly the impact
of GS on IC, this study takes the IC that lags one period, IC (it þ 1), as the dependent variables
JIC and the IC in the current period, IC (it), in the current period as the control variables to explore
further the impact of GS in the current period on IC in the next period. This explains whether
GS is the reason for the development of IC; moreover, the development of IC takes into account
the dynamic accumulation process of IC.
3.2.2 Independent variables. Supply- and demand-side are two policy approaches to
offering GS (Di Stefano et al., 2012). The former reflects the scientific and technological
activity funds obtained by enterprises from the government through the support of a national
economic development plan (Guerzoni and Raiteri, 2015). For example, in China, a five-year
national economic development plan promotes the development of certain specific industries
through GS, such as a national research funds plan, tax reduction and exemption. To measure
the value of this, like Skinner et al. (2009), this study uses the logarithm of the total amount of
scientific and technological activity funds from government departments.
Demand-side GS is mainly focused on government procurement (Di Stefano et al., 2012).
Specifically, this refers to contracts such as engineering construction projects, and goods,
services and investments purchased by state agencies, public institutions and state-owned
enterprises. Similarly, government procurement is measured by the logarithm of the total
contractual amount of government procurement, including government investment projects.
For both independent variables, a logarithm is used to reduce the influence of skewed
distribution (Guerzoni and Raiteri, 2015).
3.2.3 Mediating variable. Consistent with the measurement of the extant literature (Chen
et al., 2004), this study uses the logarithm of the ratio of total sales revenue to total fixed assets
to measure OP.
3.2.4 Control variables. For control variables, this study selects common control variables
from similar studies. Relevant features are firms’ age, industry, ownership, exportations and
size (Zhou et al., 2019). In addition, to distinguish the influence of GS on IC, this study controls
the IC of the previous period.
Finally, to render variables of different years comparable and consider price fluctuations,
this study divides all variables measured in actual currency values divided by the annual
price index. The summary of the variables’ proxies is shown in Table 1.

3.3 Models
This study also follows standard procedures and approaches (Baron and Kenny, 1986) to
testing a mediating effect to validate the specific hypotheses. First, this study adopts
Hausman’s test to determine whether the fixed effect or random effect panel data model is
suitable for the estimation of the analysis (Hausman, 1978). Shown in Table A2, which is
included in Appendix, the Hausman’s test results of all models are less than 0.01, indicating
that the fixed effect model is more suitable than the random effect model. Therefore, this
study employs the fixed effect panel data model method to test the influence of GS on IC, and
the mediating effect of OP on GS and IC. This approach allows not only consideration of the
time factor when examining the relationship between GS(it) and IC(it þ 1), thus eliminating the
problem of a possible reverse causality, but also identification of the dynamic trend of a firm’s
IC development.
Second, based on classic tests of mediation effect research (Baron and Kenny, 1986), the
authors similarly construct three related models incorporating Equations (1) to (3) to test the
mediating role of OP. Theoretically, mediating variables are caused by independent variables
and affect the changes of dependent variables, which can be measured by two key criteria
(Kenny et al., 1998). First, the independent variable and the dependent variable should have a
causal relationship, which is verified in Equation (1) in this study. Second, the mediating
effect exists; that is, the independent variable significantly explains why the mediator
changes (Equation 2 in this study), while the degree of impact of the independent variable on
Variable Measurement References
Government
support and
HC Human capital, measured by log (prime operating revenue/ Liu et al. (2009) firms’ intellectual
total number of employees)
SC Structural capital, measured by log (administration Hsu and Wang capital
expenses/total operating revenue) (2012)
RC Relational capital, measured by log (sales, general and Scafarto et al.
administration expenses/total assets) (2016)
Demand support Demand-side government support, measured by log (total Guerzoni and
contract amount of government procurement) Raiteri (2015)
Supply support Supply-side government support, measured by log (total Skinner et al.
amount of scientific and technological activity funds from (2009)
government authorities)
Operational Operational performance, measured by log (total sales Chen et al. (2004)
performance revenue/total fixed assets)
Age Age of the enterprise, measured by log (the year observed – Patel (2011)
the year established)
Industry The main type of industry code, assigned value of 1–7 Zhou et al. (2019)
SOE Firm ownership, if it is state-owned firm, SOE 5 1, otherwise Kang and Park
SOE 5 0 (2012)
Export Corporate exports, measured by log (total amount of Hsu and Wang
products or commodities sold to foreign trade departments (2012)
or directly sold to foreign investors)
Size Firm size, measured by log (total number of employees) Scafarto et al.
(2016)
Government Demand-side government support for robustness test, if it Guerzoni and
Procurement01 has government procurement, Government Raiteri (2015)
Procurement01 5 1, otherwise Government
Procurement01 5 0
Government Funds01 Supply-side government support for robustness test, if it has Skinner et al.
government funds, Government Funds01 5 1, otherwise (2009)
Government Funds01 5 0
Government Instrumental variable, measured by log (total contract Conley et al. (2012)
procurement per capita amount of government procurement/total number of
employees) Table 1.
Government funds Instrumental variable, measured by log (the number of Variable measurement
projects number government fund projects) methods

the dependent variable changes significantly after considering the influence of the mediator
on the dependent variable (Equation 3 in this study).
Specifically, the relationship between variables can be described by the following
regression equations:
ICðitþ1Þ ¼ cGSðitÞ þ α1 ControlsðitÞ þ ε1 (1)
OPðitÞ ¼ aGSðitÞ þ α2 ControlsðitÞ þ ε2 (2)
0
ICðitþ1Þ ¼ c GSðitÞ þ βOPðitÞ þ α3 ControlsðitÞ þ ε3 (3)

where i represents the individual enterprise and t is the year identification. When the
regression coefficient c in Equation (1) is significant, this implies a linear relationship between
the independent variable GS(it) and the dependent variable IC(it þ 1).
When the regression coefficient a in Equation (2) is significant, this suggests a linear
relationship between the independent variable GS(it) and the mediator OP(it). When the term β
in Equation (3) is significant, this suggests that the mediator OP(it) helps predict the
dependent variable IC(it þ 1) and that c0 changed significantly in relation to c in Equation (1).
JIC Hypothesising that GS stimulates IC, this study places lag variables into the equations to
verify how GS(it) – that is, the GS received in a certain year separately for demand-side and
supply-side GS – affects IC(it þ 1) – that is, the following year’s firm IC – in its three
components: HC, SC and RC. In other words, the model introduces a time lagging effect of IC
development, testing the current level of GS and the impacts on firms’ IC in the next period.
Control variables are also added to the models. In particular, to test whether firm IC(it þ 1)
increased because of a path-dependent pattern, the authors also control for the current level of
IC in each model.
Third, the authors also run robustness tests to validate the results further. Specifically,
first, this study employs the variable substitution method that is related to replace the
independent variable measurements with a dichotomised value. Second, to completely
exclude a possible reverse causality, a reverse model to verify the stability of results has been
applied. A time lag to the GS has been added, thus, the model puts in relation GS of the next
year, GS(it þ 1), with the IC of the year, IC(it). In this case, assuming that IC is the condition that
influences whether the firm is able to attract GS. The empirical data do not support this
reverse model, confirming the theoretical foundation of the fact that GS stimulates firms’ IC,
and not vice versa. Finally, this study uses the two-stage least squares (2SLS) estimation
method, which is suitable to investigate potential endogeneity problems in the model (Conley
et al., 2012).

4. Results
4.1 Descriptive statistics and correlations
The basic descriptive statistics and correlations of the variables are presented in Table 2. As
shown in Table 2, the data distributions of demand-side and supply-side GS are relatively
uniform and stable over time. The gap between the maximum and minimum values of OP(it),
HC(it þ 1), SC(it þ 1) and RC(it þ 1) are small, which guarantees the stability of the results. From
the results of correlations, it can be observed that both demand-side and supply-side GS are
positively and significantly related to OP(it), HC(it þ 1), SC(it þ 1) and RC(it þ 1).

4.2 Impact of government support on intellectual capital

This study examines the impact of supply- and demand-side GS on IC. The regression results
are provided in Table 3. In Models (1) to (3), the impacts of supply-side GS on IC are also
significant and have a good confidence interval (p < 0.01). Similar to the findings of previous
studies, government funds are translated into additional funds available for enterprise
innovation activities (Guo et al., 2016), participating in cooperative activities and facilitating
knowledge transfer and diffusion (Carayannis et al., 2014). The coefficients in the models are
positive, indicating that demand-side and supply-side GS have a direct positive impact on
corporate IC. Thus, also H1 and its corollaries (a, b, c) are supported.
In Models (4) to (6), the impacts of demand-side GS on firms’ IC are significant (p < 0.01).
Indeed, the standards and requirements of government procurement encourage the
development of processes and products (Walker and Phillips, 2009), improve the
production management and system for implementing government procurement projects
within a reasonable time (Walker and Phillips, 2009) and increase the initiative and
willingness of other enterprises to cooperate with focal firms (Kleer, 2010). This offers support
for H2 and its corollaries (a, b, c).

4.3 The mediating role of operational performance

The regression results on the mediating role of OP in the supply-side GS and IC relationship
are provided in Table 4. Even after introducing a mediator, supply-side GS has a significant
Variables Mean SD Minimum Maximum (1) (2) (3) (4) (5) (6) (7)

(1) HC(it þ 1) 4.151 2.892 4.190 12.407 1.000

(2) RC(it þ 1) 0.061 0.609 6.819 9.545 0.075* 1.000
(3) SC(it þ 1) 0.093 0.470 6.755 6.312 0.169* 0.139* 1.000
(4) Demand support(it) 0.200 1.311 0.000 13.613 0.007 0.143* 0.179* 1.000
(5) Supply support(it) 0.500 1.724 0.000 10.883 0.105* 0.253* 0.271* 0.116* 1.000
(6) Operational performance(it) 0.032 0.998 10.471 8.549 0.126* 0.252* 0.320* 0.236* 0.507* 1.000
(7) Age 2.140 0.543 0.000 4.159 0.395* 0.075* 0.116* 0.107* 0.064* 0.040* 1.000
(8) Industry 4.670 0.812 1.000 7.000 0.017 0.084* 0.078* 0.071* 0.126* 0.055* 0.114*
(9) SOE 0.118 0.323 0.000 1.000 0.004 0.057* 0.059* 0.004 0.080* 0.030* 0.209*
(10) Export 0.328 1.540 0.000 12.848 0.025 0.001 0.022 0.046* 0.056* 0.027* 0.074*
(11) Size 3.243 1.303 0.693 9.778 0.098* 0.016 0.136* 0.116* 0.132* 0.060* 0.147*
(12) HC(it) 5.547 1.862 4.190 14.351 0.294* 0.126* 0.070* 0.058* 0.016 0.113* 0.120*
(13) RC(it) 0.390 1.048 4.934 9.906 0.459* 0.476* 0.030* 0.081* 0.086* 0.074* 0.368*
(14) SC(it) 0.308 0.873 7.402 7.003 0.302* 0.042* 0.328* 0.125* 0.069* 0.124* 0.345*
(15) Government Procurement01(it) 0.024 0.153 0.000 1.000 0.008 0.147* 0.180* 0.969* 0.118* 0.241* 0.105*
(16) Government Funds01(it) 0.082 0.275 0.000 1.000 0.109* 0.257* 0.271* 0.099* 0.971* 0.522* 0.060*
(17) Government procurement per capita(it) 0.101 0.707 0.000 8.028 0.007 0.137* 0.165* 0.965* 0.095* 0.226* 0.099*
(18) Government funds projects number(it) 0.299 0.646 0.000 7.257 0.250* 0.078* 0.135* 0.090* 0.255* 0.151* 0.144*
(19) Demand support(it þ 1) 0.061 0.748 0.000 13.613 0.063* 0.042* 0.073* 0.324* 0.137* 0.097* 0.040*
(20) Supply support(it þ 1) 0.347 1.469 0.000 10.307 0.109* 0.196* 0.203* 0.085* 0.625* 0.313* 0.013

Variables (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20)

(1) HC(it þ 1)
(2) RC(it þ 1)
(3) SC(it þ 1)
(4) Demand support(it)
(5) Supply support(it)
(6) Operational performance(it)
(7) Age
(8) Industry 1.000
(9) SOE 0.002 1.000
(10) Export 0.051* 0.037* 1.000
(11) Size 0.041* 0.202* 0.1954* 1.000
(12) HC(it) 0.016 0.125* 0.1153* 0.1677* 1.000
(13) RC(it) 0.101* 0.131* 0.0212 0.0431* 0.0293* 1.000
(14) SC(it) 0.082* 0.119* 0.0535* 0.1098* 0.2505* 0.4686* 1.000
(15) Government Procurement01(it) 0.072* 0.003 0.0521* 0.1047* 0.0487* 0.0801* 0.1175* 1.000
(16) Government Funds01(it) 0.133* 0.072* 0.0504* 0.1171* 0.0132 0.0854* 0.0649* 0.1064* 1.000
(17) Government procurement per capita(it) 0.072* 0.002 0.0328* 0.0840* 0.0614* 0.0782* 0.1180* 0.9089* 0.0812* 1.000
(18) Government funds projects number(it) 0.022 0.050* 0.0781* 0.2490* 0.0269* 0.0911* 0.0538* 0.0880* 0.2472* 0.0711* 1.000
(19) Demand support(it þ 1) 0.057* 0.002 0.0262* 0.0644* 0.0314* 0.0018 0.0100 0.2878* 0.1238* 0.3122* 0.1107* 1.000
(20) Supply support(it þ 1) 0.095* 0.073* 0.0411* 0.0975* 0.0096 0.0380* 0.0392* 0.0839* 0.5904* 0.0704* 0.2427* 0.1656* 1.000
Note(s): Standard errors are shown in parentheses
*p < 0.01
Government

capital
support and
firms’ intellectual

Table 2.
Descriptive statistics
and correlations
 JIC

firm’s IC
Table 3.

impact of GSs on
Test results of the
(1) (2) (3) (4) (5) (6)
Variables HC(it þ 1) RC(it þ 1) SC(it þ 1) HC(it þ 1) RC(it þ 1) SC(it þ 1)

Demand support(it) 0.083*** (0.031) 0.038*** (0.005) 0.025*** (0.005)

Supply support(it) 0.154*** (0.024) 0.021*** (0.004) 0.015*** (0.004)
Export 0.024 (0.031) 0.003 (0.005) 0.004 (0.005) 0.020 (0.031) 0.003 (0.005) 0.004 (0.005)
Age 2.450*** (0.073) 0.046*** (0.013) 0.011 (0.011) 2.436*** (0.073) 0.047*** (0.013) 0.012 (0.011)
Industry 0.033 (0.074) 0.036*** (0.013) 0.003 (0.012) 0.031 (0.074) 0.035*** (0.013) 0.003 (0.012)
SOE 0.456** (0.217) 0.014 (0.037) 0.019 (0.034) 0.483** (0.217) 0.019 (0.037) 0.015 (0.034)
Size 0.331*** (0.051) 0.008 (0.009) 0.002 (0.008) 0.343*** (0.051) 0.008 (0.009) 0.002 (0.008)
HC(it) 0.251*** (0.022) 0.002 (0.004) 0.009*** (0.003) 0.254*** (0.022) 0.002 (0.004) 0.009*** (0.003)
RC(it) 0.498*** (0.084) 0.112*** (0.014) 0.104*** (0.013) 0.487*** (0.084) 0.113*** (0.014) 0.103*** (0.013)
SC(it) 0.295*** (0.068) 0.0104 (0.012) 0.147*** (0.011) 0.323*** (0.069) 0.004 (0.012) 0.143*** (0.011)
Constant 6.936*** (0.429) 0.231*** (0.074) 0.168** (0.067) 6.917*** (0.430) 0.229*** (0.074) 0.167** (0.067)
Observations 10,359 10,359 10,359 10,359 10,359 10,359
R-squared 0.155 0.015 0.032 0.151 0.018 0.033
Number of firm 3,211 3,211 3,211 3,211 3,211 3,211
Note(s): Standard errors are shown in parentheses
*** p < 0.01
** p < 0.05
* p < 0.1
 (1) (2) (3) (4)
Variables HC(it þ 1) Operational performance(it) HC(it þ 1) HC(it þ 1)

Supply support(it) 0.154*** (0.024) 0.143*** (0.007) 0.139*** (0.025)

Export 0.024 (0.031) 0.002 (0.008) 0.020 (0.031) 0.024 (0.031)
Age 2.450*** (0.073) 0.007 (0.020) 2.430*** (0.073) 2.449*** (0.073)
Industry 0.033 (0.074) 0.007 (0.020) 0.027 (0.074) 0.032 (0.074)
SOE 0.456** (0.217) 0.119** (0.058) 0.494** (0.217) 0.469** (0.217)
Size 0.331*** (0.051) 0.001 (0.014) 0.344*** (0.051) 0.331*** (0.051)
HC(it) 0.251*** (0.022) 0.027*** (0.006) 0.250*** (0.022) 0.248*** (0.022)
RC(it) 0.498*** (0.084) 0.088*** (0.023) 0.474*** (0.084) 0.489*** (0.084)
SC(it) 0.295*** (0.068) 0.040** (0.018) 0.320*** (0.069) 0.299*** (0.068)
Operational performance(it) 0.171*** (0.043) 0.110** (0.044)
Constant 6.936*** (0.429) 0.174 (0.115) 6.948*** (0.430) 6.955*** (0.429)
Observations 10,359 10,359 10,359 10,359
R-squared 0.155 0.068 0.152 0.156
Number of firm 3,211 3,211 3,211 3,211

(5) (6) (7) (8) (9) (10)

RC(it þ 1) RC(it þ 1) RC(it þ 1) SC(it þ 1) SC(it þ 1) SC(it þ 1)

0.021*** (0.004) 0.015*** (0.004) 0.015*** (0.004) 0.010** (0.004)

0.003 (0.005) 0.003 (0.005) 0.003 (0.005) 0.004 (0.005) 0.004 (0.005) 0.004 (0.005)
0.046*** (0.013) 0.044*** (0.013) 0.046*** (0.013) 0.011 (0.011) 0.010 (0.011) 0.011 (0.011)
0.036*** (0.013) 0.037*** (0.013) 0.036*** (0.013) 0.003 (0.012) 0.004 (0.012) 0.003 (0.012)
0.014 (0.037) 0.021 (0.037) 0.019 (0.037) 0.019 (0.034) 0.013 (0.034) 0.015 (0.034)
0.008 (0.009) 0.009 (0.009) 0.007 (0.009) 0.002 (0.008) 0.002 (0.008) 0.002 (0.008)
0.002 (0.004) 0.001 (0.004) 0.001 (0.004) 0.009*** (0.003) 0.010*** (0.003) 0.010*** (0.003)
0.112*** (0.014) 0.117*** (0.014) 0.115*** (0.014) 0.104*** (0.013) 0.100*** (0.013) 0.101*** (0.013)
0.010 (0.012) 0.007 (0.012) 0.009 (0.012) 0.147*** (0.011) 0.145*** (0.011) 0.146*** (0.011)
0.048*** (0.007) 0.042*** (0.008) 0.041*** (0.007) 0.037*** (0.007)
0.231*** (0.074) 0.237*** (0.074) 0.238*** (0.074) 0.168** (0.067) 0.174*** (0.067) 0.175*** (0.067)
10,359 10,359 10,359 10,359 10,359 10,359
0.015 0.017 0.019 0.032 0.035 0.036
3,211 3,211 3,211 3,211 3,211 3,211
Note(s): Standard errors are shown in parentheses
*** p < 0.01
** p < 0.05
* p < 0.1

mediating effect of
capital
support and
Government

firm’s IC
supply-side GS and
performance on
operational
firms’ intellectual

Test results of the

Table 4.
JIC positive effect on IC, thus fulfilling the first condition for mediation. Further, the impact of
supply-side GS on OP is significant (p < 0.01), and, at the same time, the effect of the mediator
is also significant (p < 0.01), indicating that OP has a significant impact on IC, thus fulfilling
the second condition for the mediation. Finally, the regression coefficients of the independent
variable to the dependent variable are still significant but changed, indicating that OP has a
significant mediating effect on the relationship between supply-side GS and firm IC. This
proves that through supply-side GS, which provides firms with more resources, companies
obtain positive OP, and positive OP can realise the upgrading of three aspects of firm IC.
Thus, hypothesis H3 and its corollaries a, b and c are supported.
Similarly, this study examines the mediating role of OP on the demand-side GS and IC
relationship. The regression results are provided in Table 5 and are similar to those obtained
for the supply-side GS component. Thus, demand-side GS improves the possibility of good
OP (Hansen et al., 2009), and firms with better OP will strengthen their IC. Thus, hypothesis
H4 and its corollaries are supported.

4.4 Robustness tests

To demonstrate further the robustness of the results, this study adopts three strategies. First,
a substitution of the measurement of the independent variables, replacing the logarithms of
GS types with binary variables (0–1) for government procurement projects and for
government fund projects provided to firms. Results of the robustness test, provided in
Table A3, demonstrate that supply-side and demand-side GS can significantly affect IC.
Thus, H1 and H2 are validated and also robust. The results in Tables A4 and A5 show the
robustness test of the mediation results. It can be also observed that OP has a significant
mediating effect on the supply- and demand-side GS and firm’s IC relationships. Thus, H3 and
H4 are also robust.
Second, the procedure implements a reverse approach to verify the stability of results and
to rule out any doubts about a reverse causality, specifically, the situation in which IC attracts
GS. As shown in Table A6, the results of this reverse model, testing the relationship between
IC(it) and GS(it þ 1), are not significant. Thus, empirical data also do not support the hypothesis
of a reverse causality.
To avoid the problem of endogeneity in the models, this study uses the logarithm of the
number of government funding projects and the logarithm of government procurement per
capita as instrumental variables for supply-side and demand-side GS in a 2SLS regression, as
suggested by Conley et al. (2012). According to the results shown in Table A7, in the first
stage, instrumental variables have a good explanatory power for the independent variables
(p < 0.01), indicating that the selection of the instrument is appropriate and effective. The
second stage regression results show that the impacts of supply-side and demand-side GS on
firm IC are significantly positive. This also supports the finding that the relationships are not
affected by endogenous issues, ensuring the consistency of the results. In sum, results show
that sign and significance of the main coefficients in the regression models did not change
drastically. This demonstrates that the regression results have good robustness, and
therefore the main empirical results of this study are confirmed to be stable.

5. Discussion and conclusions

5.1 Discussion of results
This study explores the role of GS in developing IC at the micro level of individual firms.
Referring to the extant literature that studies the impact of GS on IC accumulation in the
whole industry (Cabrita and Bontis, 2008; Kamath, 2008), this study differentiates the supply-
and demand-side of GS to focus on micro-mechanisms regulating GS influences on firms’ IC
development. Some interesting conclusions can be drawn from the findings.
 (1) (2) (3) (4)
Variables HC(it þ 1) Operational performance(it) HC(it þ 1) HC(it þ 1)

Demand support(it) 0.083*** (0.031) 0.037*** (0.008) 0.077** (0.031)

Export 0.020 (0.031) 0.001 (0.009) 0.020 (0.031) 0.020 (0.031)
Age 2.436*** (0.073) 0.010 (0.020) 2.430*** (0.073) 2.437*** (0.073)
Industry 0.031 (0.074) 0.004 (0.021) 0.027 (0.074) 0.031 (0.074)
SOE 0.483** (0.217) 0.097 (0.060) 0.494** (0.217) 0.499** (0.217)
Size 0.343*** (0.051) 0.014 (0.014) 0.344*** (0.051) 0.341*** (0.051)
HC(it) 0.254*** (0.022) 0.030*** (0.006) 0.250*** (0.022) 0.249*** (0.022)
RC(it) 0.487*** (0.084) 0.077*** (0.023) 0.474*** (0.084) 0.474*** (0.084)
SC(it) 0.323*** (0.069) 0.017 (0.019) 0.320*** (0.069) 0.326*** (0.069)
Operational performance(it) 0.171*** (0.043) 0.165*** (0.043)
Constant 6.917*** (0.430) 0.193 (0.119) 6.948*** (0.430) 6.949*** (0.430)
Observations 10,359 10,359 10,359 10,359
R-squared 0.151 0.009 0.152 0.153
Number of firm 3,211 3,211 3,211 3,211

(5) (6) (7) (8) (9) (10)

RC(it þ 1) RC(it þ 1) RC(it þ 1) SC(it þ 1) SC(it þ 1) SC(it þ 1)

0.038*** (0.005) 0.036*** (0.005) 0.025*** (0.005) 0.024*** (0.005)

0.003 (0.005) 0.003 (0.005) 0.003 (0.005) 0.004 (0.005) 0.004 (0.005) 0.004 (0.005)
0.047*** (0.013) 0.044*** (0.013) 0.047*** (0.012) 0.012 (0.011) 0.010 (0.011) 0.012 (0.011)
0.035*** (0.013) 0.037*** (0.013) 0.035*** (0.013) 0.003 (0.012) 0.004 (0.012) 0.003 (0.012)
0.019 (0.037) 0.021 (0.037) 0.023 (0.037) 0.015 (0.034) 0.013 (0.034) 0.011 (0.034)
0.008 (0.009) 0.009 (0.009) 0.007 (0.008) 0.002 (0.008) 0.002 (0.008) 0.001 (0.008)
0.002 (0.004) 0.001 (0.004) 0.001 (0.004) 0.009*** (0.003) 0.010*** (0.003) 0.010*** (0.003)
0.113*** (0.014) 0.117*** (0.014) 0.117*** (0.014) 0.103*** (0.013) 0.100*** (0.013) 0.100*** (0.013)
0.004 (0.012) 0.007 (0.012) 0.003 (0.012) 0.143*** (0.011) 0.145*** (0.011) 0.143*** (0.011)
0.048*** (0.007) 0.046*** (0.007) 0.041*** (0.007) 0.040*** (0.007)
0.229*** (0.074) 0.237*** (0.074) 0.238*** (0.073) 0.167** (0.067) 0.174*** (0.067) 0.175*** (0.067)
10,359 10,359 10,359 10,359 10,359 10,359
0.018 0.017 0.024 0.033 0.035 0.038
3,211 3,211 3,211 3,211 3,211 3,211
Note(s): Standard errors are shown in parentheses
*** p < 0.01
** p < 0.05
* p < 0.1

mediating effect of

firm’s IC
capital
support and
Government

demand-side GS and
performance on
operational
firms’ intellectual

Test results of the

Table 5.
JIC First, the results show that GS has positive effects on all sub-types of IC: HC, SC and RC.
Through focusing on IC and its components, lagged by one period, the study explores the
impact of GS in the current period on IC in the next period, and thus verifying that GS can be
instrumental to influencing firms’ IC development. Moreover, by adding IC current stocks as
control variable, the study also excludes the assumption that IC accumulation is only induced
by a path dependent situation.
Supply-side GS is a kind of direct recourse input to support firm activities of IC
development, such as government subsidies on workforce training and development to
enhance HC, and facilitating collaborations among enterprises, universities and other
partners. Meanwhile, demand-side GS contract terms can be considered guidance that
requires a firm to prove its IC development potential through GS application materials.
Therefore, the results of this study enrich previous research on the positive effect of GS on IC
accumulation at the macro-level (Joia, 2008).
Second, by means of the mediation effect (Baron and Kenny, 1986), this study verifies the
micro-mechanisms through which GS influences firm IC via OP. These results shed more
light on the impacts of institutional factors, such as GS, on firm performance (Aerts and
Schmidt, 2008) and how this is translated into a dynamic approach to IC accumulation (Kianto
et al., 2014). It can be seen that the “real” effect of GS depends on the recipient’s resource
orchestration ability, which adapts and blends resources offered by the different types of GS
into the resource base of a firm, and in turns, it stimulates the desired impacts on IC
accumulation effectively (Roos and O’Connor, 2015).

5.2 Theory contributions and managerial implications

The present study offers several contributions that improve the theoretical, managerial and
practical understanding of the effects of GS on firms’ IC. First, this research contributes to the
IC debate by enriching the perspective on antecedent and determinant factors of IC
development. The extant literature has discussed the roles of IC in firm innovation and
sustaining competitive advantage (Kianto et al., 2014), but little research has empirically
studied the effect of GS on firm IC and the dynamic change of firm IC. For this reason, more
light has been shed on micro-mechanisms regulating how external resources, in this case
provided by government authorities, are capitalised into IC (Cheng et al., 2010). Consequently,
this research opens discussion about further refining analytic frameworks and developing
new models to address the dynamic change of firm IC.
Second, the results of the study can also be interpreted employing a purely institutional
logic. The institutional-based theory emphasises the relationship among institutions,
enterprises and strategies, and how institutional factors, considered independent factors,
influence firms’ behaviours and strategies (Peng, 2003). This study further explores the
institutional impact of GS on firm OP and IC by revealing the roles of supply-side and
demand-side GS, thereby expanding the debate about institutional pressures and
mechanisms. This consideration is particularly important, especially in the context of a
transitional economy in which the government still has a decisive impact on economic life
(Peng and Luo, 2000).
Third, this study confirms the concept that resource orchestration mechanisms also apply
to external institutional factors in their capacity to drive the upgrading of IC. This expands
the whole theoretical paradigm because, so far, resource orchestration theory has mainly
focused only on internal factors (Sirmon et al., 2011). Conversely, it is also important to
confirm theoretically that institutional factors need to be blended with firms’ resources and
capabilities to fully exploit their potential advantages.
This research contains useful managerial implications, the foremost of which is insights
for managers, who can build up firms’ IC by searching “outside” their firms and securing GS.
Second, this study should raise awareness about how GS resources are managed inside the
firm. GS, although a powerful instrument, can be seriously limited if attention is not paid to an Government
effective resources allocation that allows for transformation of GS into firm IC. This can also support and
open up further research on understanding barriers and facilitators of this capitalisation, for
example, organisational factors such as leadership (Pellegrini et al., 2020) and employees’
firms’ intellectual
empowerment (Bontis and Serenko, 2007). Third, the institutional environment surrounding capital
a firm can be fertile ground to learn, transfer and integrate knowledge, cultivate talent and
build stakeholder relationships. The signalling effect occurring in the case of GS can
stimulate this situation, and thus for the firm, the benefit of obtaining GS is not limited to the
internal environment. Thus, GS results in a powerful means to obtain legitimacy and market
power, especially in a transactional economy (Park and Luo, 2001).
The findings of this study also have significant practical implications. At the economic
level, GS can be an “invasive” approach when the government tends to foster a certain
industry or an advanced technology that is yet to draw enough attention from the economic
market. That is, GS can be an economic way to support the preliminary R&D on advanced
technologies, which is filled with high uncertainty about the research progress and future
development. At the institutional level, using potential IC development as the criterion in
allocating GS is of benefit in that it offers the possibility of receiving GS to firms that are not
yet sophisticated. At the social level, future research can investigate the macro concept of IC,
which means the IC of industries or of an economic zone, to encourage the IC between firms,
universities and other institutions.

5.3 Limitations and future research avenues

Along with its merits, the study also has limitations. First, the findings reflect the current
situation in the ZGC demonstration zone of China, one of the most developed in the high-tech
industries. This confers an institutional and technological infrastructure that is probably not
so developed in other areas, and thus governmental efforts can be also higher. Thus, these
results are highly context specific, impeding a large generalization, which instead would need
replication in different areas in China, and even in other developing, transitional and
developed countries. However, while the context is specific, GS and its institutional model are
largely adopted in many other countries. Examples of this come from developing and
transitional economies, for example, the project of a “Second Silicon Valley” in Israel (Senor
and Singer, 2011) and the establishment of National Innovation Centres in Islamabad and
other Pakistani cities to promote advanced industries (Cohen, 2011). Even the United States
has similar approaches, examples of which are the intervention of the United States
government to foster the semiconductor industry (Tassey, 2014), or the aviation industry
(Auld et al., 2013). Since national and state culture have an important influence on
organisational change and innovation (Lewin and Kim, 2004), it would be significant and
meaningful to explore further the influence of more institutional contexts of firm IC in the
future.
Second, another specificity of this study is a sample drawn from the same or related
industries (advanced technology industries). Other types of industries may be differently
affected by government intervention. Many scholars have paid much attention to the
pharmaceutical industry (Kamath, 2008), the banking industry (Cabrita and Bontis, 2008) and
the biotechnology industry (Huang and Wu, 2010). However, insufficient attention has been
paid to certain other industries, e.g. food or tourism industries. Accordingly, future research
should explore the potential impact of GS on firm IC, focusing on the differences among
industries.
Finally, micro-mechanisms that relate GS and IC are far from being fully understood,
especially in consideration of the IC accumulation process. For example, in addition to GS, IC’s
previous year stock also affects IC accumulation, and not in a linear manner. It seems, indeed,
JIC that the three types of IC may be competing against each other in the IC accumulation
process. This is visible in the results provided in Table 4 because the coefficients HC(it), RC(it)
and SC(it) are positively or negatively significant respectively when independent variables are
HC(it þ 1), RC(it þ 1) and SC(it þ 1). Thus, managers should carefully review how to assign and
blend GS external resources in relation to previous investment in IC. Although beyond the
scope of this paper, this consideration opens up interesting future research.

References
Aerts, K. and Schmidt, T. (2008), “Two for the price of one?: additionality effects of R&D subsidies: a
comparison between Flanders and Germany”, Research Policy, Vol. 37 No. 5, pp. 806-822.
Armanios, D.E., Eesley, C.E., Li, J. and Eisenhardt, K.M. (2017), “How entrepreneurs leverage
institutional intermediaries in emerging economies to acquire public resources”, Strategic
Management Journal, Vol. 38 No. 7, pp. 1373-1390.
Auld, T., McHenry, M.P. and Whale, J. (2013), “US military, airspace, and meteorological radar system
impacts from utility class wind turbines: implications for renewable energy targets and the
wind industry”, Renewable Energy, Vol. 55, pp. 24-30.
Barbieri, J.C., Vasconcelos, I.F.G., Andreassi, T. and Vasconcelos, F. (2010), “Innovation and
sustainability: new models and propositions”, Rae-Revista de Administracao de Empresas,
Vol. 50 No. 2, pp. 146-154.
Baron, R.M. and Kenny, D.A. (1986), “The moderator–mediator variable distinction in social
psychological research: conceptual, strategic, and statistical considerations”, Journal of
Personality and Social Psychology, Vol. 51 No. 6, pp. 1173-1182.
Bontis, N. and Serenko, A. (2007), “The moderating role of human capital management practices on
employee capabilities”, Journal of Knowledge Management, Vol. 11 No. 3, pp. 31-51.
Cabrita, M.R. and Bontis, N. (2008), “Intellectual capital and business performance in the Portuguese
banking industry”, International Journal of Technology Management, Vol. 43 Nos 1-3,
pp. 212-237.
Carayannis, E., Del Giudice, M. and Rosaria Della Peruta, M. (2014), “Managing the intellectual capital
within government-university-industry R&D partnerships”, Journal of Intellectual Capital,
Vol. 15 No. 4, pp. 611-630.
Chen, J., Zhu, Z. and Xie, H.Y. (2004), “Measuring intellectual capital: a new model and empirical
study”, Journal of Intellectual Capital, Vol. 5 No. 1, pp. 195-212.
Chen, J.Y., Dimitrov, S. and Pun, H. (2019), “The impact of government subsidy on supply chains’
sustainability innovation”, Omega, Vol. 86, pp. 42-58.
Cheng, M., Lin, J., Hsiao, T. and Lin, T.W. (2010), “Invested resource, competitive intellectual capital,
and corporate performance”, Journal of Intellectual Capital, Vol. 11 No. 4, pp. 433-450.
Cohen, S.P. (2011), The Future of Pakistan, Brookings Institution Press, Washington, District
Columbia.
Conley, T.G., Hansen, C.B. and Rossi, P.E. (2012), “Plausibly exogenous”, The Review of Economics and
Statistics, Vol. 94 No. 1, pp. 260-272.
Di Stefano, G., Gambardella, A. and Verona, G. (2012), “Technology push and demand pull
perspectives in innovation studies: current findings and future research directions”, Research
Policy, Vol. 41 No. 8, pp. 1283-1295.
Fabrizio, K.R., Poczter, S. and Zelner, B.A. (2017), “Does innovation policy attract international
competition? Evidence from energy storage”, Research Policy, Vol. 46 No. 6, pp. 1106-1117.
Figueiredo, P.N. (2002), “Does technological learning pay off? Inter-firm differences in technological
capability-accumulation paths and operational performance improvement”, Research Policy,
Vol. 31 No. 1, pp. 73-94.
Filatotchev, I., Liu, X., Lu, J. and Wright, M. (2011), “Knowledge spillovers through human mobility Government
across national borders: evidence from Zhongguancun Science Park in China”, Research Policy,
Vol. 40 No. 3, pp. 453-462. support and
Flammer, C. (2018), “Competing for government procurement contracts: the role of corporate social
firms’ intellectual
responsibility”, Strategic Management Journal, Vol. 39 No. 5, pp. 1299-1324. capital
Garanina, N.O., Sidorova, E.A. and Anureev, I.S. (2016), “Conflict resolution in multi-agent systems
with typed relations for ontology population”, Programming and Computer Software, Vol. 42
No. 4, pp. 206-215.
General Office of the State Council of the People’s Republic of China (1995), Decision on Accelerating
the Progress of Science and Technology, General Office of the State Council of the People’s
Republic of China, Beijing.
Guerzoni, M. and Raiteri, E. (2015), “Demand-side vs. supply-side technology policies: hidden
treatment and new empirical evidence on the policy mix”, Research Policy, Vol. 44 No. 3,
pp. 726-747.
Guo, D., Guo, Y. and Jiang, K. (2016), “Government-subsidized R&D and firm innovation: evidence
from China”, Research Policy, Vol. 45 No. 6, pp. 1129-1144.
Hansen, H., Rand, J. and Tarp, F. (2009), “Enterprise growth and survival in Vietnam: does
government support matter?”, Journal of Development Studies, Vol. 45 No. 7, pp. 1048-1069.
Hausman, J.A. (1978), “Specification tests in econometrics”, Econometrica: Journal of the Econometric
Society, Vol. 46 No. 6, pp. 1251-1271.
Helfat, C.E. and Peteraf, M.A. (2015), “Managerial cognitive capabilities and the microfoundations of
dynamic capabilities”, Strategic Management Journal, Vol. 36 No. 6, pp. 831-850.
Hsu, L.C. and Wang, C.H. (2012), “Clarifying the effect of intellectual capital on performance: the
mediating role of dynamic capability”, British Journal of Management, Vol. 23 No. 2,
pp. 179-205.
Huang, Y.C. and Wu, Y.C.J. (2010), “Intellectual capital and knowledge productivity: the Taiwan
Biotech Industry”, Management Decision, Vol. 48 No. 4, pp. 580-599.
Hung, S.C. and Chu, Y.Y. (2006), “Stimulating new industries from emerging technologies: challenges
for the public sector”, Technovation, Vol. 26 No. 1, pp. 104-110.
Joia, L.A. (2008), “The impact of government-to-government endeavors on the intellectual capital of
public organizations”, Government Information Quarterly, Vol. 25 No. 2, pp. 256-277.
Kalcheva, I., McLemore, P. and Pant, S. (2018), “Innovation: the interplay between demand-side shock
and supply-side environment”, Research Policy, Vol. 47 No. 2, pp. 440-461.
Kamath, G.B. (2008), “Intellectual capital and corporate performance in Indian pharmaceutical
industry”, Journal of Intellectual Capital, Vol. 9 No. 4, pp. 684-704.
Kang, K.N. and Park, H. (2012), “Influence of government R&D support and inter-firm collaborations
on innovation in Korean biotechnology SMEs”, Technovation, Vol. 32 No. 1, pp. 68-78.
Kenny, D.A., Kashy, D.A. and Bolger, N. (1998), “Data analysis in social psychology”, The Handbook
of Social Psychology, Vol. 1, pp. 233-265.
Khanna, T. and Yafeh, Y. (2007), “Business groups in emerging markets: paragons or parasites?”,
Journal of Economic Literature, Vol. 45 No. 2, pp. 331-372.
Kianto, A. (2007), “What do we really mean by the dynamic dimension of intellectual capital?”,
International Journal of Learning and Intellectual Capital, Vol. 4 No. 4, pp. 342-356.
Kianto, A., Ritala, P., Spender, J.C. and Vanhala, M. (2014), “The interaction of intellectual capital
assets and knowledge management practices in organizational value creation”, Journal of
Intellectual Capital, Vol. 15 No. 3, pp. 362-375.
Kleer, R. (2010), “Government R&D subsidies as a signal for private investors”, Research Policy,
Vol. 39, pp. 1361-1374.
JIC Lewin, A.Y. and Kim, J. (2004), “The nation-state and culture as influences on organizational change
and innovation”, in Poole, M.S. and van de Ven, A.H. (Eds), Handbook of Organization Change
and Innovation, Oxford University Press, Oxford, pp. 324-353.
Liu, D.Y., Tseng, K.A. and Yen, S.W. (2009), “The incremental impact of intellectual capital on value
creation”, Journal of Intellectual Capital, Vol. 33 No. 2, pp. 260-276.
Meyer, K.E. and Peng, M.W. (2016), “Theoretical foundations of emerging economy business
research”, Journal of International Business Studies, Vol. 47 No. 1, pp. 3-22.
Mody, A. (1996), Infrastructure Delivery: Private Initiative and the Public Good, The World Bank,
Washington, DC.
Ministry of Science and Technology of the People’s Republic of China (MOST) (1988), China Torch
Program, Ministry of Science and Technology of the People’s Republic of China, Beijing.
Nicholas, C. and Fruhmann, M. (2014), “Small and medium-sized enterprises policies in public
procurement: time for a rethink?”, Journal of Public Procurement, Vol. 14 No. 3, p. 328.
Park, S.H. and Luo, Y. (2001), “Guanxi and organizational dynamics: organizational networking in
Chinese firms”, Strategic Management Journal, Vol. 22 No. 5, pp. 455-477.
Patanakul, P. (2014), “Managing large-scale IS/IT projects in the public sector: problems and causes
leading to poor performance”, The Journal of High Technology Management Research, Vol. 25
No. 1, pp. 21-35.
Patel, P.C. (2011), “Role of manufacturing flexibility in managing duality of formalization and
environmental uncertainty in emerging firms”, Journal of Operations Management, Vol. 29
Nos 1-2, pp. 143-162.
Pellegrini, M.M., Ciampi, F., Marzi, G. and Orlando, B. (2020), “The relationship between knowledge
management and leadership: mapping the field and providing future research avenues”, Journal
of Knowledge Management, Vol. 24 No. 6, pp. 1445-1492.
Peng, M.W. (2003), “Institutional transitions and strategic choice”, Academy of Management Review,
Vol. 28 No. 2, pp. 275-296.
Peng, M.W. and Heath, P.S. (1996), “The growth of the firm in planned economies in transition:
institutions, organizations, and strategic choice”, Academy of Management Review, Vol. 21
No. 2, pp. 492-528.
Peng, M.W. and Luo, Y. (2000), “Managerial ties and firm performance in a transition economy: the
nature of a micro-macro link”, Academy of Management Journal, Vol. 43 No. 3, pp. 486-501.
Peng, M.W., Wang, D.Y.L. and Jiang, Y. (2008), “An institution-based view of international business
strategy: a focus on emerging economies”, Journal of International Business Studies, Vol. 39
No. 5, pp. 920-936.
Peng, M.W., Sun, S.L., Pinkham, B. and Chen, H. (2009), “The institution-based view as a third leg for a
strategy tripod”, Academy of Management Perspectives, Vol. 23 No. 3, pp. 63-81.
Peng, M.W., Sun, W., Vlas, C., Minichilli, A. and Corbetta, G. (2018), “An institution-based view of
large family firms: a recap and overview”, Entrepreneurship: Theory and Practice, Vol. 42 No. 2,
pp. 187-205.
Porter, M.E. (1998), “Clusters and the new economics of competition”, Harvard Business Review,
Vol. 76 No. 6, pp. 77-90, Boston.
Roos, G. and O’Connor, A. (2015), Integrating Innovation: South Australian Entrepreneurship Systems
and Strategies, University of Adelaide Press, Adelaide.
Scafarto, V., Ricci, F. and Scafarto, F. (2016), “Intellectual capital and firm performance in the global
agribusiness industry: the moderating role of human capital”, Journal of Intellectual Capital,
Vol. 17 No. 3, pp. 530-552.
Schneider, B., Ehrhart, M.G. and Mayer, D.M. (2005), “Understanding organization-customer links in
service settings”, Academy of Management Journal, Vol. 48 No. 6, pp. 1017-1032.
Schuler, R.S., Budhwar, P.S. and Florkowski, G.W. (2002), “International human resource Government
management: review and critique”, International Journal of Management Reviews, Vol. 4
No. 1, pp. 41-70. support and
Senor, D. and Singer, S. (2011), Start-Up Nation: The Story of Israel’s Economic Miracle, Random
firms’ intellectual
House Digital, New York. capital
Sirmon, D.G., Hitt, M.A., Ireland, R.D. and Gilbert, B.A. (2011), “Resource orchestration to create
competitive advantage: breadth, depth, and life cycle effects”, Journal of Management, Vol. 37
No. 5, pp. 1390-1412.
Skinner, S.J., Ekelund, R.B., Jr. and Jackson, J.D. (2009), “Art museum attendance, public funding, and
the business cycle”, The American Journal of Economics and Sociology, Vol. 68 No. 2,
pp. 491-516.
Stewart, T.A. (1997), Intellectual Capital: The New Wealth of Organizations, Bantam Doubleday Dell
Publishing Group, New York, NY.
Tassey, G. (2014), “Competing in advanced manufacturing: the need for improved growth models and
policies”, The Journal of Economic Perspectives, Vol. 28 No. 1, pp. 27-48.
Teece, D.J., Pisano, G. and Shuen, A. (1997), “Dynamic capabilities and strategic management”,
Strategic Management Journal, Vol. 18 No. 7, pp. 509-533.
Walker, H. and Phillips, W. (2009), “Sustainable procurement: emerging issues”, International Journal
of Procurement Management, Vol. 2 No. 1, pp. 41-61.
Wang, E.C. (2010), “Determinants of R&D investment: the extreme- bounds- analysis approach
applied to 26 OECD countries”, Research Policy, Vol. 39 No. 1, pp. 103-116.
Wang, Z., Wang, N. and Liang, H. (2014), “Knowledge sharing, intellectual capital and firm
performance”, Management Decision, Vol. 52 No. 2, pp. 230-258.
Wonglimpiyarat, J. (2006), “The dynamic economic engine at Silicon Valley and US Government
programmes in financing innovations”, Technovation, Vol. 26 No. 9, pp. 1081-1089.
Xu, K., Huang, K.F. and Xu, E. (2014), “Giving fish or teaching to fish? An empirical study of the
effects of government research and development policies”, R&D Management, Vol. 44 No. 5,
pp. 484-497.
Yan, Z. and Li, Y. (2018), “Signaling through government subsidy: certification or endorsement”,
Finance Research Letters, Vol. 25, pp. 90-95.
Zhou, J., Wu, R. and Li, J. (2019), “More ties the merrier? Different social ties and firm innovation
performance”, Asia Pacific Journal of Management, Vol. 36 No. 2, pp. 445-471.
Z

un
Alonso-Borrego, C., Forcadell, F.J. and Gal
an, J.I. (2014), “Assessing the effect of
~iga-Vicente, J.A.,
public subsidies on firm R&D investment: a survey”, Journal of Economic Surveys, Vol. 28
No. 1, pp. 36-67.
JIC Appendix

(1) The statistics on original variables

Original variables Mean SD Minimum Maximum

Prime operating revenues (thousand yuan) 100851.5 903679.4 0.032 35,900,000

Total number of employees 77.20388 312.9721 2 17,648
Administration expenses (thousand yuan) 3779.569 25833.24 0.001 92,3291
Total operating revenues (thousand yuan) 83021.53 843808.9 0.032 35,900,000
Sale expenses (thousand yuan) 3347.627 46540.29 0.008 2,067,555
Total assets (thousand yuan) 313212.1 3,863,037 1 192,000,000
The total contractual amount of government procurement 627.4352 13524.88 0 816,412
(demand-side GS, Thousand yuan)
Total amount of public funds received for scientific and 100.8364 894.7481 0 53,267
technological activities (supply-side GS, thousand yuan)
Total fixed assets (thousand yuan) 24717.99 505674.2 0.1(e6) 19,900,000
Total sales revenue (thousand yuan) 3627.93 44289.64 0.032 3,116,547
Export (thousand yuan) 542.5743 8908.739 0 380,133

(2) Descriptive statistics on GS

Big enterprises Medium enterprises Small enterprises Micro enterprises
(employees (300 ≤ employees (20 ≤ employees (employees
≥ 1,000) < 1,000) < 300) < 20)
Demand Supply- Demand Supply- Demand Supply- Demand Supply-
-side GS side GS -side GS side GS -side GS side GS -side GS side GS

Average annual 5.8 10.9 9.3 11.7 5.2 14.7 1.3 4.7
proportion of
enterprises
receiving GS
(%)
The annual 7.342 2.511 275.778 9.304 182.016 23.438 274.151 53.611
amount of GS
per capita
(Thousand
yuan)
The average 15162.333 5116.400 131863.700 4631.929 15427.364 1280.115 2735.238 540.400
annual amount
of GS
(Thousand
yuan)
Table A1. Note(s): (1) The dimensional classes are determined by the National Bureau of Statistics, China. (2) The annual
Descriptive statistics of amount of GS per capita 5 the amount of GS/ the number of employees of each firm (Thousand yuan). (3) The
sample data average annual amount of GS 5 the amount of GS/the number of firms received GS

Supply-side Demand-side
Dependent variables χ 2 value P value χ 2 value P value

Table A2. HC(it þ 1) 651.14 0.0000 569.64 0.0000

Results of the RC(it þ 1) 345.56 0.0000 154.90 0.0000
Hausman test SC(it þ 1) 255.19 0.0000 81.48 0.0000
 (1) (2) (3) (4) (5) (6)
Variables HC(it þ 1) RC(it þ 1) SC(it þ 1) HC(it þ 1) RC(it þ 1) SC(it þ 1)

Government Procurement01(it) 0.818*** (0.257) 0.319*** (0.044) 0.217*** (0.040)

Government Funds01(it) 1.051*** (0.151) 0.153*** (0.026) 0.109*** (0.024)
Export 0.023 (0.031) 0.003 (0.005) 0.004 (0.005) 0.020 (0.031) 0.003 (0.005) 0.004 (0.005)
Age 2.449*** (0.073) 0.046*** (0.013) 0.011 (0.011) 2.438*** (0.073) 0.047*** (0.013) 0.012 (0.011)
Industry 0.034 (0.074) 0.036*** (0.013) 0.003 (0.012) 0.031 (0.074) 0.035*** (0.013) 0.003 (0.012)
SOE 0.467** (0.217) 0.015 (0.037) 0.018 (0.034) 0.486** (0.217) 0.020 (0.037) 0.015 (0.034)
Size 0.331*** (0.051) 0.007 (0.009) 0.001 (0.008) 0.343*** (0.051) 0.008 (0.009) 0.002 (0.008)
HC(it) 0.251*** (0.022) 0.002 (0.004) 0.009*** (0.003) 0.254*** (0.022) 0.002 (0.004) 0.009** (0.003)
RC(it) 0.499*** (0.084) 0.112*** (0.014) 0.104*** (0.013) 0.487*** (0.084) 0.114*** (0.014) 0.103*** (0.013)
SC(it) 0.294*** (0.068) 0.0107 (0.012) 0.148*** (0.011) 0.324*** (0.069) 0.004 (0.012) 0.143*** (0.011)
Constant 6.917*** (0.429) 0.228*** (0.074) 0.166** (0.067) 6.922*** (0.430) 0.231*** (0.074) 0.168** (0.067)
Observations 10,359 10,359 10,359 10,359 10,359 10,359
R-squared 0.156 0.016 0.033 0.151 0.019 0.034
Number of firm 3,211 3,211 3,211 3,211 3,211 3,211
Note(s): Standard errors are shown in parentheses
*** p < 0.01
** p < 0.05
* p < 0.1

results of the impact of

capital
support and
Government

GSs on firm’s IC
firms’ intellectual

Table A3.
The robust check
 JIC

firm’s IC
Table A4.

performance on
The robust check

supply-side GS and
effect of operational
results of the mediating
(1) (2) (3) (4)
Variables HC(it þ 1) Operational performance(it) HC(it þ 1) HC(it þ 1)

Government Funds01(it) 1.051*** (0.151) 0.941*** (0.041) 0.957*** (0.157)

Export 0.023 (0.031) 0.001 (0.008) 0.020 (0.031) 0.023 (0.031)
Age 2.449*** (0.073) 0.006 (0.020) 2.430*** (0.073) 2.449*** (0.073)
Industry 0.034 (0.074) 0.009 (0.020) 0.027 (0.074) 0.033 (0.074)
SOE 0.467** (0.217) 0.108* (0.058) 0.494** (0.217) 0.477** (0.217)
Size 0.331*** (0.051) 0.001 (0.014) 0.344*** (0.051) 0.331*** (0.051)
HC(it) 0.251*** (0.022) 0.027*** (0.006) 0.250*** (0.022) 0.248*** (0.022)
RC(it) 0.499*** (0.084) 0.088*** (0.022) 0.474*** (0.084) 0.490*** (0.084)
SC(it) 0.294*** (0.068) 0.040** (0.018) 0.320*** (0.069) 0.298*** (0.068)
Operational performance(it) 0.171*** (0.043) 0.099** (0.044)
Constant 6.917*** (0.429) 0.192* (0.115) 6.948*** (0.430) 6.936*** (0.429)
Observations 10,359 10,359 10,359 10,359
R-squared 0.156 0.076 0.152 0.156
Number of firm 3,211 3,211 3,211 3,211

(5) (6) (7) (8) (9) (10)

RC(it þ 1) RC(it þ 1) RC(it þ 1) SC(it þ 1) SC(it þ 1) SC(it þ 1)

0.153*** (0.026) 0.116*** (0.027) 0.109*** (0.024) 0.076*** (0.025)

0.003 (0.005) 0.003 (0.005) 0.003 (0.005) 0.004 (0.005) 0.004 (0.005) 0.004 (0.005)
0.046*** (0.013) 0.044*** (0.013) 0.046*** (0.013) 0.011 (0.011) 0.010 (0.011) 0.011 (0.011)
0.036*** (0.013) 0.037*** (0.013) 0.036*** (0.013) 0.003 (0.012) 0.004 (0.012) 0.003 (0.012)
0.015 (0.037) 0.021 (0.032) 0.019 (0.037) 0.018 (0.034) 0.013 (0.034) 0.014 (0.034)
0.007 (0.009) 0.009 (0.009) 0.007 (0.009) 0.001 (0.008) 0.002 (0.008) 0.001 (0.008)
0.002 (0.004) 0.001 (0.004) 0.001 (0.004) 0.009*** (0.003) 0.010*** (0.003) 0.010*** (0.003)
0.112*** (0.014) 0.117*** (0.014) 0.115*** (0.014) 0.104*** (0.013) 0.100*** (0.013) 0.101*** (0.013)
0.011 (0.012) 0.007 (0.012) 0.009 (0.012) 0.148*** (0.011) 0.145*** (0.011) 0.146*** (0.011)
0.048*** (0.007) 0.040*** (0.008) 0.041*** (0.007) 0.036*** (0.007)
0.228*** (0.074) 0.237*** (0.074) 0.236*** (0.074) 0.166** (0.067) 0.174*** (0.067) 0.173*** (0.067)
10,359 10,359 10,359 10,359 10,359 10,359
0.016 0.017 0.020 0.033 0.035 0.036
3,211 3,211 3,211 3,211 3,211 3,211
Note(s): Standard errors are shown in parentheses
*** p < 0.01
** p < 0.05
* p < 0.1
 (1) (2) (3) (4)
Variables HC(it þ 1) Operational performance(it) HC(it þ 1) HC(it þ 1)

Government Procurement01(it) 0.818*** (0.257) 0.384*** (0.071) 0.756*** (0.258)

Export 0.020 (0.031) 0.001 (0.009) 0.020 (0.031) 0.020 (0.031)
Age 2.438*** (0.073) 0.009 (0.020) 2.430*** (0.073) 2.439*** (0.073)
Industry 0.031 (0.074) 0.004 (0.021) 0.027 (0.074) 0.030 (0.074)
SOE 0.486** (0.217) 0.100 (0.060) 0.494** (0.217) 0.501** (0.217)
Size 0.343*** (0.051) 0.013 (0.014) 0.344*** (0.051) 0.341*** (0.051)
HC(it) 0.254*** (0.022) 0.030*** (0.006) 0.250*** (0.022) 0.249*** (0.022)
RC(it) 0.487*** (0.084) 0.077*** (0.023) 0.474*** (0.084) 0.474*** (0.084)
SC(it) 0.324*** (0.069) 0.016 (0.019) 0.320*** (0.069) 0.327*** (0.069)
Operational performance(it) 0.171*** (0.043) 0.163*** (0.043)
Constant 6.922*** (0.430) 0.191 (0.119) 6.948*** (0.430) 6.953*** (0.430)
Observations 10,359 10,359 10,359 10,359
R-squared 0.151 0.010 0.152 0.153
Number of firm 3,211 3,211 3,211 3,211

(5) (6) (7) (8) (9) (10)

RC(it þ 1) RC(it þ 1) RC(it þ 1) SC(it þ 1) SC(it þ 1) SC(it þ 1)

0.319*** (0.044) 0.302*** (0.044) 0.217*** (0.040) 0.202*** (0.040)

0.003 (0.005) 0.003 (0.005) 0.003 (0.005) 0.004 (0.005) 0.004 (0.005) 0.004 (0.005)
0.047*** (0.013) 0.044*** (0.013) 0.048*** (0.012) 0.012 (0.011) 0.010 (0.011) 0.012 (0.011)
0.035*** (0.013) 0.037*** (0.013) 0.036*** (0.013) 0.003 (0.012) 0.004 (0.012) 0.003 (0.012)
0.020 (0.037) 0.021 (0.037) 0.024 (0.037) 0.015 (0.034) 0.013 (0.034) 0.011 (0.034)
0.008 (0.009) 0.009 (0.009) 0.008 (0.009) 0.002 (0.008) 0.002 (0.008) 0.002 (0.008)
0.002 (0.004) 0.001 (0.004) 0.001 (0.004) 0.009** (0.003) 0.010*** (0.003) 0.010*** (0.003)
0.114*** (0.014) 0.117*** (0.014) 0.117*** (0.014) 0.103*** (0.013) 0.100*** (0.013) 0.100*** (0.013)
0.004 (0.012) 0.007 (0.012) 0.004 (0.012) 0.143*** (0.011) 0.145*** (0.011) 0.143*** (0.011)
0.048*** (0.007) 0.045*** (0.007) 0.041*** (0.007) 0.039*** (0.007)
0.231*** (0.074) 0.237*** (0.074) 0.239*** (0.073) 0.168** (0.067) 0.174*** (0.067) 0.176*** (0.067)
10,359 10,359 10,359 10,359 10,359 10,359
0.019 0.017 0.024 0.034 0.035 0.038
3,211 3,211 3,211 3,211 3,211 3,211
Note(s): Standard errors are shown in parentheses
*** p < 0.01
** p < 0.05
* p < 0.1

firm’s IC
capital
support and
Government

demand-side GS and
performance on
effect of operational
firms’ intellectual

Table A5.
The robust check
results of the mediating
 JIC

Table A6.

firm’s IC on GSs
The robust check
results of the impact of
(1) (2) (3) (4) (5) (6)
Variables Demand support(it þ 1) Demand support(it þ 1) Demand support(it þ 1) Supply support(it þ 1) Supply support(it þ 1) Supply support(it þ 1)

HC(it) 0.001 (0.007) 0.015 (0.011)

RC(it) 0.007 (0.027) 0.025 (0.041)
SC(it) 0.022 (0.022) 0.052 (0.034)
Export 0.010 (0.010) 0.010 (0.010) 0.010 (0.010) 0.022 (0.016) 0.021 (0.016) 0.021 (0.016)
Age 0.022 (0.024) 0.022 (0.024) 0.025 (0.024) 0.124*** (0.036) 0.114*** (0.036) 0.119*** (0.036)
Industry 0.025 (0.025) 0.025 (0.025) 0.025 (0.025) 0.056 (0.037) 0.056 (0.037) 0.057 (0.037)
SOE 0.047 (0.072) 0.047 (0.072) 0.047 (0.072) 0.182* (0.109) 0.186* (0.109) 0.186* (0.109)
Size 0.005 (0.017) 0.005 (0.017) 0.005 (0.017) 0.090*** (0.025) 0.088*** (0.025) 0.086*** (0.025)
Demand 0.050*** (0.010) 0.050*** (0.010) 0.051*** (0.010) 0.012 (0.015) 0.012 (0.015) 0.011 (0.015)
support(it)
Supply support(it) 0.031*** (0.008) 0.031*** (0.008) 0.031*** (0.008) 0.209*** (0.012) 0.209*** (0.012) 0.210*** (0.012)
Constant 0.080 (0.142) 0.084 (0.138) 0.084 (0.138) 0.373* (0.215) 0.435** (0.209) 0.448** (0.209)
Observations 10,359 10,359 10,359 10,359 10,359 10,359
R-squared 0.006 0.006 0.006 0.043 0.043 0.043
Number of firm 3,211 3,211 3,211 3,211 3,211 3,211
Note(s): Standard errors are shown in parentheses
*** p < 0.01
** p < 0.05
* p < 0.1
 (1) (2) (3)
First-stage
Variables Demand support(it) Supply support(it) HC(it þ 1)

Demand support(it) 0.072** (0.032)

Supply support(it)
Government procurement per capita(it) 1.707*** (0.005)
Government funds projects number(it) 0.151*** (0.027)
Export 0.003 (0.003) 0.021 (0.015) 0.020 (0.031)
Age 0.011 (0.007) 0.182*** (0.036) 2.435*** (0.073)
Industry 0.003 (0.007) 0.029 (0.036) 0.031 (0.074)
SOE 0.003 (0.022) 0.137 (0.105) 0.482** (0.217)
Size 0.011** (0.005) 0.086*** (0.025) 0.343*** (0.051)
HC(it) 0.003 (0.002) 0.026** (0.011) 0.254*** (0.022)
RC(it) 0.021** (0.008) 0.072* (0.041) 0.487*** (0.084)
SC(it) 0.013* (0.007) 0.133*** (0.033) 0.322*** (0.069)
Constant 0.027 (0.043) 0.233 (0.209) 6.917*** (0.430)
Observations 10,359 10,359 10,359
Number of newid 3,211 3,211 3,211

(4) (5) (6) (7) (8)

Second-stage
RC(it þ 1) SC(it þ 1) HC(it þ 1) RC(it þ 1) SC(it þ 1)

0.038*** (0.005) 0.025*** (0.005)

6.232*** (1.140) 0.143** (0.066) 0.219*** (0.068)

0.003 (0.005) 0.004 (0.005) 0.173* (0.100) 0.000 (0.006) 0.009 (0.006)
0.047*** (0.013) 0.012 (0.011) 3.323*** (0.279) 0.064*** (0.016) 0.041** (0.017)
0.035*** (0.013) 0.003 (0.012) 0.228 (0.233) 0.032** (0.014) 0.003 (0.014)
0.019 (0.037) 0.015 (0.034) 0.392 (0.694) 0.003 (0.041) 0.047 (0.041)
0.008 (0.009) 0.002 (0.008) 0.261 (0.193) 0.004 (0.011) 0.018 (0.012)
0.002 (0.004) 0.009*** (0.003) 0.077 (0.076) 0.001 (0.004) 0.015*** (0.005)
0.113*** (0.014) 0.103*** (0.013) 0.922*** (0.273) 0.103*** (0.016) 0.118*** (0.016)
0.004 (0.012) 0.143*** (0.011) 0.534** (0.264) 0.027* (0.015) 0.175*** (0.016)
0.229*** (0.074) 0.167** (0.067) 7.795*** (1.347) 0.248*** (0.079) 0.197** (0.080)
10,359 10,359 10,359 10,359 10,359
3,211 3,211 3,211 3,211 3,211
Note(s): Standard errors are shown in parentheses
*** p < 0.01
** p < 0.05
* p < 0.1

Results of
capital
support and
Government
firms’ intellectual

Table A7.

endogeneity test
JIC About the authors
Zhongjuan Sun is an associate professor of Department of Business Administration, College of Business
Administration, Capital University of Economics and Business. She is also a research fellow at both
China Industrial Economy Research Institute and the ESG Research Institute at Capital University of
Economics and Business. Her research interests include innovation management, science and
technology policy, and technological acquisition. As Principal Investigator or Co-investigator, she has
finished or is working on more than several projects, which funded by National Natural Science
Foundation of China and British Academy.
Massimiliano Matteo Pellegrini is a associate professor of organizational studies and
entrepreneurship behaviour at University of Rome “Tor Vergata”. From the same university, he also
received his Ph.D. 2011. Previously, he was a senior lecturer in entrepreneurship at Roehampton
University Business School. During his career, he covered several roles as permanent staff e.g. at
Princess Sumaya University for Technology (Jordan) and University of West-London (UK) as lecturer.
As visiting scholar, he was associated to the research program of the: University of Warsaw (Poland),
Capital University of Economics and Business (CUEB) (China), Central University of Finance and
Economics (CUFE) (China), University of Enlarger-Nuremberg (Germany), Sol C. Snider Entrepreneurial
Research Center at The Wharton School and University of Linz. He was the chair for the Strategic
Interest Group of Entrepreneurship (E-ship SIG) at the European Academy of Management (EURAM)
until 2018, where he coordinated a community of over 200 scholars and through which was possible to
submit several research fund proposals. His research interests and publications are focused on
entrepreneurial and organizational behaviours; he published more than 60 contributions focused on
entrepreneurial, ethical and organizational behaviours in high-ranked journals e.g. Small Business
Economics, Journal of Business Ethics, Journal of Managerial Psychology, IEEE Transactions on
Engineering Management, International Journal of Entrepreneurial Behaviours & Research,
International Journal of Entrepreneurship & Small Business and Business Process Management Journal.
Cizhi Wang is currently a lecture of College of Business Administration, Capital University of
Economics and Business, China. His research interests are entrepreneurship in family business, family
entrepreneurship, and interaction of family members in entrepreneurial family. His work adopts the
interpersonal or collective perspective and focus on the socialization process in an organization. His
latest publication appeared in the Management Decision Journal, Journal of Family Business
Management and the Journal of Small Business and Entrepreneurship. Cizhi Wang is the
corresponding author and can be contacted at: cizhi.wang@cueb.edu.cn
Zhu Yu is a master’s student and a research assistant at the College of Business Administration,
Capital University of Economics and Business. His research interests include management of science
and technology policy, innovation and technological acquisition. As research assistant, he is working on
the project of National Natural Science Foundation of China. He has published some papers in some
Chinese journals and presented studies in international conferences.

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com