LAUSR

Purpose The purpose of this paper is to evaluate the effect of government intervention on a firm's innovation activities. Design/methodology/approach On the basis of previous literature, this paper proposes a framework to explain behavioral changes in the firm resulting from government interventions. Using propensity score matching technique, this research tries to estimate the effect of R&D subsidies on Iranian firms (small and medium-sized enterprises and large-sized firms). Findings This paper identified that R&D subsidies have a significant effect on the innovation process. Furthermore, investigations indicate that behavioral variables (innovation capabilities, collaboration agreements and risk-taking) have been partly changed in both SMEs and large firms after subsidizing. The analysis of innovation outputs showed that although R&D subsidies significantly increase the number of new products/services or patents (especially for SMEs), it could not increase the total sale of the firms. These results show that the effect of R&D subsidies has not interestingly covered all variables influencing innovation activities. Research limitations/implications The work used dynamic capability theory, transaction cost theory and behavioral theory of the firm to explain behavioral changes in the firm resulting from government interventions. Practical implications This paper proposes several policy concerns which can help the policymakers to stimulate the innovation support procedures in Iran. Social implications This paper provides insights for improved policymaking which in turn can aid boosting social welfare. Originality/value This paper re-conceptualized behavioral additionality based on firms’ behavioral theories and evaluated the effects of Iranian R&D subsidies on their measures.