Subsidy Phase-Out, Innovation, and Policy Design: Evidence from China’s Photovoltaic Industry

Subsidy Phase-Out, Innovation, and Policy Design: Evidence from China’s Photovoltaic Industry | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Subsidy Phase-Out, Innovation, and Policy Design: Evidence from China’s Photovoltaic Industry Runjie Fan, Hao Liu, Le Zhang This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-9416991/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 4 You are reading this latest preprint version Abstract This study examines the impact of subsidy phase-out policies on firm-level research and development (R&D) investment in the new energy sector. A sequential game-theoretic model is developed to analyze strategic interactions between government and firms, and its implications are empirically tested using a propensity score matching difference-in-differences approach based on Chinese listed manufacturing firms from 2016 to 2021. The results show that subsidy phase-out policies significantly reduce firms’ R&D investment. This negative effect operates primarily by deteriorating firms’ operating performance. The impact is more pronounced for non–state-owned firms, high-growth firms, and firms located in central regions. The theoretical analysis further reveals that subsidy efficiency, market expansion effects, and firms’ subsidy capture rates exhibit diminishing marginal returns. Excessive subsidies also redirect fiscal resources toward consumers with weaker low-carbon preferences. Based on these findings, this study proposes an integrated subsidy phase-out mechanism incorporating the phase-out rate, critical trigger thresholds, and the phase-out period. The mechanism is designed to prevent market contraction, ensure that policy exit is synchronized with the growth of endogenous market forces, and ultimately facilitate the transition of the new energy industry from policy-driven to market-driven development. New energy industry Subsidy phase-out Policy effects Research and development investment Mechanism design Photovoltaic industry Full Text Cite Share Download PDF Status: Under Review Version 1 posted Reviewers agreed at journal 23 Apr, 2026 Reviewers invited by journal 22 Apr, 2026 Editor assigned by journal 20 Apr, 2026 First submitted to journal 18 Apr, 2026 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-9416991","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":627726389,"identity":"7bb6e1af-04dd-4229-b596-5bdc63489ab9","order_by":0,"name":"Runjie Fan","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA/0lEQVRIie3PMUvDQBTA8RcOkuXg1gtIPsMrAREs5Ku8o6DLDV3dMiVLugt+CZ2MW8KBXc490iVd6uJgt3ZRmzpq0rp1uP/whoPfvTsAl+sEE4xVSHzMkzwF6aXdGQ2TMM9o2p5dRcgrkPUxBK3FdTs2MUo6kkBDo3vSTD2Gb8vFujQgAo2wLfuFd0sTJOurpzsdX9TWQFi8ozez/YRJekZVcJUutC/rzAA2GpmX9RNfqnyjPqVKX+erPUkOEc539xLHGBs4/9kiDxAZZB2hKCx2f3mx11za1bSeDZDEiI/Rhn9xEcyXzU15GYl88tBuB8jvl3aj+gdwuVwu1x99Axz6WRYK/KAhAAAAAElFTkSuQmCC","orcid":"https://orcid.org/0000-0002-6178-9741","institution":"Shandong Technology and Business University","correspondingAuthor":true,"prefix":"","firstName":"Runjie","middleName":"","lastName":"Fan","suffix":""},{"id":627726390,"identity":"7a1f7280-8f05-4816-a157-4267f6210038","order_by":1,"name":"Hao Liu","email":"","orcid":"","institution":"Central University of Finance and Economics","correspondingAuthor":false,"prefix":"","firstName":"Hao","middleName":"","lastName":"Liu","suffix":""},{"id":627726391,"identity":"35688fbc-5d27-4af9-921c-3db56a3d5708","order_by":2,"name":"Le Zhang","email":"","orcid":"","institution":"Shandong Technology and Business University","correspondingAuthor":false,"prefix":"","firstName":"Le","middleName":"","lastName":"Zhang","suffix":""}],"badges":[],"createdAt":"2026-04-14 14:51:22","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-9416991/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-9416991/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":108183253,"identity":"87734581-d4cb-4acf-8a45-e2694f3146d7","added_by":"auto","created_at":"2026-04-30 09:00:03","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":542117,"visible":true,"origin":"","legend":"","description":"","filename":"Manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-9416991/v1_covered_e3a820e3-1b6e-4383-9c2c-cd84500151c4.pdf"}],"financialInterests":"","formattedTitle":"Subsidy Phase-Out, Innovation, and Policy Design: Evidence from China’s Photovoltaic Industry","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"journal-of-industrial-and-business-economics","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"jibe","sideBox":"Learn more about [Journal of Industrial and Business Economics](https://www.springer.com/journal/40812)","snPcode":"40812","submissionUrl":"https://www.editorialmanager.com/jibe","title":"Journal of Industrial and Business Economics","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"em","reportingPortfolio":"Springer Hybrid","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"New energy industry, Subsidy phase-out, Policy effects, Research and development investment, Mechanism design, Photovoltaic industry","lastPublishedDoi":"10.21203/rs.3.rs-9416991/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-9416991/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis study examines the impact of subsidy phase-out policies on firm-level research and development (R\u0026amp;D) investment in the new energy sector. A sequential game-theoretic model is developed to analyze strategic interactions between government and firms, and its implications are empirically tested using a propensity score matching difference-in-differences approach based on Chinese listed manufacturing firms from 2016 to 2021. The results show that subsidy phase-out policies significantly reduce firms\u0026rsquo; R\u0026amp;D investment. This negative effect operates primarily by deteriorating firms\u0026rsquo; operating performance. The impact is more pronounced for non\u0026ndash;state-owned firms, high-growth firms, and firms located in central regions. The theoretical analysis further reveals that subsidy efficiency, market expansion effects, and firms\u0026rsquo; subsidy capture rates exhibit diminishing marginal returns. Excessive subsidies also redirect fiscal resources toward consumers with weaker low-carbon preferences. Based on these findings, this study proposes an integrated subsidy phase-out mechanism incorporating the phase-out rate, critical trigger thresholds, and the phase-out period. 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