Abstract:  By using the database of Chinese industrial enterprises and adopting the quasi-natural experimental method of propensity score matching-difference in differences (PSM-DID), the effect of financial subsidies on corporate innovation was demonstrated in different scenarios. The results show that financial subsidies have significantly promoted corporate innovation. For each 1% increase in financial subsidies, corporate innovation output increases by 5.4%, 5.7% and 5.2%, respectively. The contribution of this research is that it integrates government intervention theory, soft budget constraint theory, and rent-seeking theory into the exploration of the role of financial subsidies on corporate innovation; that the use of quasi-natural experimental method reduces endogenous bias caused by potential sample selectivity bias; that using the output value of new products to measure innovation performance highlights the market transformation ability of enterprise innovation. The research provides empirical support for the government to optimize financial subsidy policies and for enterprises to carry out innovation activities.

Key words:  , financial subsidy, enterprise innovation, propensity score matching-difference in differences, promoting effect