Abstract:This paper empirically analyzed the impact of government compensation on re-innovation of the enterprise innovation failure. The results showed that re-innovation performances can be improved by both direct government compensation and indirect compensation, and the effect of direct compensation was more significant. The enterprise ownership had a regulatory effect that the influence by state-owned enterprises on the direct compensation effect was more obvious than that on the indirect compensation effect. And further tests showed that there existed an inverted U-shaped relationship between the direct compensation and R&D investment in re-innovation. That was, there was a critical value for direct compensation, below which the compensation showed as spillover effect, while above the critical value the compensation showed as crowding-out effect. Moreover, the government indirect compensation for R&D investment in enterprise re-innovation manifested as a spillover effect. These results extended the research of government compensation on the enterprise re-innovation, and provided a new way for the compensation policy on innovation failure and incentive policy on re-innovation based on innovation fault tolerance.