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Incentive effects of government subsidy on technological innovation: Evidence from pharmaceutical industry

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  • Yang, Tingting
  • Xu, Botong

Abstract

It is important to motivate pharmaceutical companies in technological innovation. We study the incentive effects of three types of government subsidies, including R&D subsidies, tax incentives, and non-R&D subsidies, on pharmaceutical companies’ innovation. Results show that: 1) R&D subsidies have a significant positive effect on the innovation performance, while tax incentives have no positive impact on this. 2) Tax incentives positively (negatively) affect the innovation performance of state-owned (private) companies. 3) R&D subsidies ease the financing constraints and encourage companies to increase R&D investment, thereby enhancing the innovation. Our findings have implications on inspiring innovation in the pharmaceutical industry.

Suggested Citation

  • Yang, Tingting & Xu, Botong, 2023. "Incentive effects of government subsidy on technological innovation: Evidence from pharmaceutical industry," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323003008
    DOI: 10.1016/j.frl.2023.103928
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    References listed on IDEAS

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    1. Dimos, Christos & Pugh, Geoff & Hisarciklilar, Mehtap & Talam, Ema & Jackson, Ian, 2022. "The relative effectiveness of R&D tax credits and R&D subsidies: A comparative meta-regression analysis," Technovation, Elsevier, vol. 115(C).
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    3. Zheng, Wenping & Zhang, Jie, 2021. "Does tax reduction spur innovation? Firm-level evidence from China," Finance Research Letters, Elsevier, vol. 39(C).
    4. Zhao, Meiyu & Zhang, Bo, 2023. "Credit corruption, financial constraint and corporate innovation: Evidence on China," Finance Research Letters, Elsevier, vol. 53(C).
    5. Boeing, Philipp & Eberle, Jonathan & Howell, Anthony, 2022. "The impact of China's R&D subsidies on R&D investment, technological upgrading and economic growth," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    6. Wang, Lanfang & Wang, Yue & Zhou, Jing, 2022. "Political connection,government R&D subsidies and innovation efficiency: Evidence from China," Finance Research Letters, Elsevier, vol. 48(C).
    7. He, Lerong & Jiang, Xiaozhen & Fang, Liting, 2023. "Tax policy reform and corporate innovation in China," Finance Research Letters, Elsevier, vol. 55(PA).
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    Cited by:

    1. Zhang, Zeyi & Luo, Xuehua & Du, Jiating & Xu, Baoliang, 2024. "Substantive or strategic: Government R&D subsidies and green innovation," Finance Research Letters, Elsevier, vol. 67(PA).
    2. Chang, Feifan, 2024. "Strategizing in a turbulent world: Analyzing the effects of international sanctions and policy shifts on corporate innovation," Finance Research Letters, Elsevier, vol. 67(PB).
    3. Wan, Paijie & He, Feng & Zhang, Hongjie, 2024. "Can the separation of marketing authorization from manufacturing authorization stimulate pharmaceutical innovation? Evidence from China's pharmaceutical industry reform," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 734-748.

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