The effect of government incentive policy on firm´s innovation performance: A multilevel analysis

This study investigates how government incentive policy stimulates firms´ innovation performance, and then how firms adapt and co-evolve with the stimulation to achieve legitimacy and financial benefit simultaneously. By examining 54 Chinese High-Tech industrial parks in the period of 2002-2008 and using hierarchical linear model as our analysis method, our results suggest that government incentive policy affects firms´ innovation performance in a U-shaped way. Although government incentive policy has a direct impact on firms´ innovation performance, firms have certain level of flexibility to adapt to the policy which leads to a U-shaped growth trend of innovation performance. Moreover, the strength of government incentive policy has a long-term effects on innovation performance in different regions. This paper provides more empirical evidences and theoretical understanding of firms´ motivations to innovation to the current literature.