US trade tariff sanctions against China since 2018 and the events of “ZTE” and “Huawei” have put forward in-depth thinking on the core technology innovation of manufacturing enterprises. An important reason for the lack of innovation driving force of Chinese manufacturing enterprises is that there are obvious constraints on R&D investment and financing. Different financing sources correspond to different contractual relationships and constraint mechanisms. The financing structure composed of multiple financing relationships has a profound impact on the investment decision-making of enterprises. By establishing the dynamic optimization model of corporate investment in the incomplete capital market, this paper studies the impact of corporate financing structure on innovation investment, and which financing channel can effectively alleviate the fluctuation of innovation investment. According to the study, this paper gets the following findings: First, the innovation investment level of listed manufacturing enterprises in China has not reached the optimal, and enterprises are more inclined to meet the demand of innovation investment through external financing. Second, in the inner structure of external financing, equity financing contributes the most to enterprise innovation investment, followed by government financial subsidies. Although debt financing represented by bank credit is the most important financing channel for manufacturing enterprises, it contributes the least to innovation investment. Third, equity financing fluctuations have a significant negative impact on enterprise innovation investment, internal financing and government financial subsidies play an important role in smoothing short-term innovation investment fluctuations, while debt financing and equity financing impact will form a synchronous effect, accelerating the deterioration of innovation investment of manufacturing enterprises. Therefore, the government’s policy should pay more attention to the following aspects: First, improve the external financing environment of manufacturing enterprises. Second, comprehensively establish a capital reserve system for the innovation of manufacturing enterprises. Third, refine the government’s policy to support technological innovation in manufacturing industry. As to the contribution of this paper, on the one hand, it attempts to use the analysis framework of dynamic optimization model of enterprise investment, by relaxing the original theoretical assumptions and adding external financing factors to the model to expand the existing relevant theories. On the other hand, it studies whether the diversified financing channels will form a smooth mechanism for the fluctuation of enterprises’ innovation investment under the impact of equity financing market.
Financing Channels and Innovation Investment
Foreign Economics & Management Vol. 42, Issue 08, pp. 123 - 138 (2020) DOI:10.16538/j.cnki.fem.20200610.402
 Bai Junhong. Are Government R&D Subsidies Efficient in China? Evidence from Large and Medium Enterprises[J]. China Economic Quarterly, 2011, (4): 1375-1400.
 Gong Qiang, Zhang Yilin, Lin Yifu. Industrial Structure, Risk Feature and Optimal Financial Structure[J]. Economic Research Journal, 2014, (4): 4-16.
 Guo Lihong, Ma Wenjie. Financing Constraints and Re-examination of Investment-Cash Flow Sensitivity: Evidence from Chinese Listed Companies[J]. The Journal of World Economy, 2009, (2): 77-87.
 Guo Yue. Signal Transmission Mechanism of Government Innovation Subsidy and Enterprise Innovation[J]. China Industrial Economics, 2018, (9): 98-116.
 Guo Xinwei, Wang Xi. Financial Constraints, Cash Smoothing and Firms’R&D Investment: Evidence from Chinese Listed Manufacturing Firms[J]. Business Management Journal, 2014, (8): 144-155.
 Han Peng,Tang jiahai. Financing Constraints, Cash Holding and R & D Smoothing[J]. Research on Financial and Economic Issues, 2012, (10): 86-91.
 Xie Weimin, Fang Hongxing. Financial Development, Financing Constraints and Firms' R&D Investment[J]. Journal of Financial Research, 2011, (5): 171-183.
 Ju Xiaosheng. Financing Sources and Smooth Mechanism of Innovation Investment of Chinese Listed Companies[J]. The Journal of World Economy, 2013, (4): 138-159.
 Li Huidong, Tang Yuejun, Zuo Jingjing. Innovate with Your Own Money or with Others’ Money? Research on Financial Structure and Innovation of Chinese Listed Companies[J]. Journal of Financial Research, 2013, (2): 170-183.
 Lu Xin, Zheng Yangfei, Li Jianming. Research on the Impact of Financing Constraints on Corporate R&D Investment: Evidence from the Hi-tech Listed Companies in China[J]. Accounting Research, 2013, (5): 51-58.
 Ma Wei, Hui Ning. Research on the Effect of Financial Structure on Technological Innovation and its Regional Differences[J]. Economic Science, 2018, (2): 75-87.
 Nie Zhengyan. Financial Transformation, Technological Innovation and Transition of Economic Growth Pattern of China[J]. Economic Theory and Business Management, 2012, (5): 72-79.
 Sun Liang, Liu Jianhua. Banking System Reform, Marketization and Bank Credit Allocation[J]. Journal of Financial Research, 2011, (1): 94-109.
 Wang Ganggang, Xie Fuji, Jia You. Reconsider Incentive Mechanism of R&D Subsidy Policy: Based on Exploration for External Financing Incentive Mechanism[J]. China Industrial Economics, 2017, (2): 60-78.
 Wang Yuze, Luo Nengsheng, Liu Wenbin. What Leverage is Beneficial to Firm Innovation[J]. China Industrial Economics, 2019, (3): 138-155.
 Wu Shue, Zhong Weizhou, Wei Jianbo, et al. Financing Sources, Cash Holdings and R&D Smoothing: Evidence from the Biomedical Manufacturing[J]. China Economic Quarterly, 2016, (2): 745-766.
 Xiao Xingzhi, Wang Hai. Which Financing Channel is Much Better for Smooth Enterprise Innovation Activities？[J]. Business Management Journal, 2015, (8): 151-160.
 Xu Ming, Liu Jinshan. What Kind of Financial Structure is Conducive to Technological Innovation: Theoretical Deconstruction, Practical Guidance and Enlightenment[J]. Economist, 2017, (10): 54-64.
 Yang Zhiqing, Zhang Fan, Zhang Youdou. How Government Subsidy Effect Firm Innovation in Competitive Fields[J]. Finance & Trade Economics, 2019, (9): 132-145.
 Zhang Yafeng, Liu Haibo, Chen Guanghua, et al. Is Patent a Good Indicator of Innovation Measurement? [J]. Foreign Economics & Management, 2018, (6): 3-16.
 Zhao Yanyun, Liu Siming. Empirical Study on China Patent’s Effect on Economic Development Mode: 1988~2008[J]. The Journal of Quantitative & Technical Economics, 2011, (4): 34-48.
 Andrei D, Mann W, Moyen N. Why did the q theory of investment start working? [J]. Journal of Financial Economics, 2019, 133(2): 251-272.
 Arque-Castells P. Persistence in r&d performance and its implications for the granting of subsidies[J]. Review of Industrial Organization, 2013, 43(3): 193-220.
 Brown J R, Petersen B C. Cash holdings and R&D smoothing[J]. Journal of Corporate Finance, 2011, 17(3): 694-709.
 Brown J R, Martinsson G, Petersen B C. Law, stock markets, and innovation[J]. Journal of Finance, 2013, 68(4): 1517-1549.
 Carree M, Piergiovanni R, Santarelli E, et al. Factors favoring innovation from a regional perspective: A comparison of patents and trademarks[J]. International Entrepreneurship and Management Journal, 2015, 11(4): 793-810.
 Dixit A K, Pindyck R S. The options approach to capital-investment[J]. Harvard Business Review, 1995, 73(3): 105-115.
 Erickson T, Whited T M. Measurement error and the relationship between investment and q[J]. Journal of Political Economy, 2000, 108(5): 1027-1057.
 Gilchrist S, Sim J W, Zakrajsek E. Misallocation and financial market frictions: Some direct evidence from the dispersion in borrowing costs[J]. Review of Economic Dynamics, 2013, 16(1): 159-176.
 Hall B H. Business and financial method patents, innovation, and policy[J]. Scottish Journal of Political Economy, 2009, 56(4): 443-473.
 Hayashi F. Tobin's marginal q and average q: A neoclassical interpretation[J]. Econometrica, 1982, 50(1): 213-224.
 He Z Z, Ciccone S. Too much liquidity? Seemingly excess cash for innovative firms[J]. Financial Review, 2020, 55(1): 121-144.
 Hsu P H, Tian X, Xu Y. Financial development and innovation: Cross-country evidence[J]. Journal of Financial Economics, 2014, 112(1): 116-135.
 Kashyap A K, Stein J C, Wilcox D W. Monetary-policy and credit conditions - Evidence from the composition of external finance[J]. American Economic Review, 1993, 83(1): 78-98.
 Khan M K, Kaleem A, Zulfiqar S, et al. Innovation investment: behaviour of Chinese firms towards financing sources[J]. International Journal of Innovation Management, 2019, 23(7):1950070-1-29.
 Kleer R. Government R&D subsidies as a signal for private investors[J]. Research Policy, 2010, 39(10): 1361-1374.
 Le T, Jaffe A B. The impact of R&D subsidy on innovation: evidence from New Zealand firms[J]. Economics of Innovation and New Technology, 2017, 26(5): 429-452.
 Liang Y S, Shi K, Wang L S, Xu J Y. Local government debt and firm leverage: Evidence from China[J]. Asian Economic Policy Review, 2017, 12(2): 210-232.
 Lin H C M, Bo H. State-ownership and financial constraints on investment of Chinese-listed firms: new evidence[J]. European Journal of Finance, 2012, 18(6): 497-513.
 Stiglitz J E, Weiss A. Credit rationing in markets with imperfect information[J]. American Economic Review, 1981, 71(3): 393-410.
Cite this article
Li Zhen, Xi Feifei, Chen Tianming. Financing Channels and Innovation Investment[J]. Foreign Economics & Management, 2020, 42(8): 123-138.