Abstract: One of the key strategic decisions in firms concerns the timing and financing of an investment. However, bonds are not the only source of financing key strategic investments. Government subsidy is an important sources of financing. The government uses the subsidy to help the R&D enterprises to solve the problems of insufficient investment. According to a recent report by National Bureau of Statistics. The total expenditure on R&D activities in China was 2,173.7 billion yuan in 2019, with an average annual growth rate of 10.73% from 2015 to 2019. Among them, the total expenditure on R&D activities by companies in 2019 can account for about 79%, and the government accounts for 21%. The state’s financial science and technology funds are increasing year by year at an average annual rate of 12.9%. The investment process of a R&D project can be seen as multiple real options that can be executed in multiple stages, and it should have different cash flow in different stages. So how to analyze the optimal investment decision of R&D projects in a competitive environment has become a key issue for corporate decision makers. Existing studies still have certain insufficiency. First, the previous studies which consider the decision model of the project investment value evaluation and the competition game of multiple projects, failed to consider the situation that government subsidies support R&D project investment. Second, most of the research based on Pindyck ignore the important fact that real options are multi-stage options in R&D projects, and they do not fully reveal the mechanism of action between investment strategies at each stage. According to the above statements, based on the government’s subsidy for corporate R&D projects, this paper constructs an uncertain investment and financing model for the government and entrepreneur’s game. The study found that when the entrepreneur’s debt negotiation ability is weak, the government will not adopt a subsidy strategy, and the entrepreneur will delay investment and reduce the financing scale. When the entrepreneur’s debt negotiation ability is strong, the government will increase the subsidy and the entrepreneur will advance investment, reduction of investment scale and financing scale. This shows that only when entrepreneurs have a certain bargaining power in the bank debt market, government subsidies can effectively alleviate insufficient investment. In addition, with the increase in the uncertainty of project cash flow, government subsidies tend to increase first and then decrease under equilibrium. Therefore, the government should adopt subsidy strategies based on research and development projects with different risks. The conclusion of this paper theoretically enriches the research on the existing subsidy policy, and provides a useful reference for the government to implement the subsidy policy more effectively.

Key words: R&D project, uncertain investment, negotiation, financing, government subsidies