Managing R&D Subsidies: How Executives’ Knowledge Diversity Supports Effective Resource Utilisation

Title: Managing R&D Subsidies: How Executives’ Knowledge Diversity Supports Effective Resource Utilisation (w/ Marlene Herz)

Abstract: Strategy scholars are increasingly highlighting the importance of studying how industrial policies influence firms' competitiveness and innovation. While economic research on industrial policy has extensively explored how governments can identify the right firms to support, the emerging research in strategy offers limited insights into how effectively these firms utilize such subsidies. This is surprising as strategy research since long has stressed that executives’ characteristics make a difference in firm performance, for instance, by enhancing the leverage of scarce resources. We argue that executives’ knowledge diversity renders the conversion process of governmental R&D subsidies into higher innovation performance as it improves the identification and selection of external and internal opportunities. Using a unique dataset of publicly listed Chinese firms between 2008 and 2017 and a difference-in-differences design, we find that executives’ broader external and internal knowledge repertoire contributes to higher innovation performance from R&D subsidies. Our results contribute to studies at the nexus between industrial policy and strategic management by underscoring the vital role of executives’ characteristics in facilitating impactful industrial policies.