Tax Incentives, R&amp;D Manipulation, and Corporate Innovation Performance: Evidence from Listed Companies in China

Wenyan Sun,Zhe Liu,Kedong Yin

doi:10.3390/su132111819

Abstract

This study investigated the R&D manipulation of Chinese listed companies under preferential tax policies based on the bunching approach. On this basis, differences in organizational performance aspirations were used to distinguish firm heterogeneity. This was to clarify how tax incentives affected firm innovation performance. The empirical results show that preferential tax policies can effectively reduce the actual tax burden of high-tech enterprises. Some companies have enjoyed corporate income tax breaks by manipulating R&D spending. The counterfactual estimate of R&D intensity shows that the elasticity of taxable income of R&D investment of listed companies in China is between 0.55 and 0.8. The elasticity of taxable income of manufacturing enterprises is between 0.6 and 0.75. Furthermore, within the R&D operating range, firm-level variations will affect innovation performance. The incentive effect of R&D activities of enterprises with a negative organizational performance aspiration gap is higher than that of enterprises with a positive organizational performance aspiration gap. The conclusion provides the basis for the country to improve preferential tax policies for high-tech enterprises.

Highlights

Published: 26 October 2021Classical economic theory and endogenous economic theory agree that technological innovation plays a vital role in the process of economic development
The marginal tax burden of individuals located on the right side of the critical point decreases after the R&D intensity exceeds a critical point
Each individual moves to a higher R&D intensity by increasing their R&D investment with the goal of 3%

Summary

Introduction

Classical economic theory and endogenous economic theory agree that technological innovation plays a vital role in the process of economic development. The government has a motivation to seek the optimal allocation of resources by intervening and providing support to corporate R&D investment to promote enterprise technological innovation [1,2,3]. The abuse of scientific and technological achievements is a necessary factor hindering sustainable development. One of the ways to solve this problem is to promote scientific and technological innovation. A preferential tax policy is one of the general policies of OECD countries to support enterprises’ technological innovation, including accelerated depreciation policies and R&D tax incentives [4,5,6]. One part of the tax policy formulation strategy is sustainable economic development, encouraging and guiding enterprise ecological innovation.

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Conclusion