Government　subsidies　for　corporate　research　and　development　(R&D)　are　thought　to　be　necessary,　in　theory　and　in　practice.　However,　both　policymakers　and　scholars　question　the　efficiency　of　such　subsidies,　because　numerous　innovative　enterprises　receive　funding　but　fail.　Some　researchers　suggest　that　the　main　cause　of　perceived　inefficiency　is　the　information　asymmetry　between　the　government　and　enterprises.　In　this　study,　we　focus　on　signal　theory,　proposing　that　foreign　investors　as　a　signal　can　help　the　government　to　reduce　the　information　asymmetry　when　selecting　enterprises　to　sponsor.　China＇s　Shanghai-Hong　Kong　Stock　Connect　provides　an　appropriate　setting　for　our　quasi-natural　experiment.　Our　empirical　results　reveal　that　the　enterprises　targeted　by　the　Shanghai-Hong　Kong　Stock　Connect　can　receive　more　R&D　subsidies　from　the　government.　And　the　positive　net　impacts　are　more　apparent　in　smaller-sized　enterprises,　and　enterprises　in　high-tech　industries　and　those　with　a　high　proportion　of　intangible　assets.　The　study　further　shows　that　enterprises　sponsored　by　the　government　are　more　likely　to　use　the　subsidy　efficiently　and　improve　their　performance.　©　2020　Elsevier　Inc.