Innovation, Profit-Seeking, and the Formation of High Value-Added Companies: An Empirical Study on China’s Listed Manufacturing Companies

Abstract

ABSTRACT Increasing the value-added ratios (VARs) of manufacturing companies or industries is an important proposition of many governments’ industrial upgrading strategies. Since the VAR has never been the goal of profit-seeking enterprises, whether innovation, which plays an important role in achieving profitability objectives, also has an impact over the VAR, has become a noteworthy issue. Using data from China’s listed manufacturing companies from 2012 to 2019, we conducted an empirical study to analyze the impact of R&D intensities on the VARs, which was further explained under the policy of additional tax deductions for R&D expenses. We found that there is a time lag in the impact of a company’s R&D activities on its VAR: Only when its current-year R&D intensity has been changed for over 1 year, can it incur a significant positive impact on the corporate VAR. And this positive impact grows over time. Moreover, such impact is independent of profitability and thus, although R&D is a profit-motivated activity, increasing the R&D intensity could indeed increase a company’s VAR, and facilitate the formation of a high value-added company.