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Tax policy and innovation performance: Evidence from enactment of the alternative simplified credit

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  • Chen, Sheng-Syan
  • Kao, Wei-Chuan
  • Wang, Yanzhi

Abstract

We examine how direct tax incentives affect firm innovation performance using a new U.S. R&D tax credit regime enacted in 2007, the Alternative Simplified Credit (ASC). A difference-in- differences analysis indicates that innovation performance is poorer for ASC users than for firms using the original R&D tax credit method following the ASC enactment. The results are stronger for firms with poorer governance and greater innovation diversity. ASC users suffer from poorer profitability and lower valuations. The findings remain robust to self-selection bias and various robustness checks. Our evidence favors a dark-side view of R&D tax credit effects under the ASC.

Suggested Citation

  • Chen, Sheng-Syan & Kao, Wei-Chuan & Wang, Yanzhi, 2021. "Tax policy and innovation performance: Evidence from enactment of the alternative simplified credit," Journal of Banking & Finance, Elsevier, vol. 125(C).
    • Handle: RePEc:eee:jbfina:v:125:y:2021:i:c:s037842662100039x
    DOI: 10.1016/j.jbankfin.2021.106081
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    More about this item

    Keywords

    R&D tax credits; Alternative simplified credit; Innovation performance; Innovation diversity; Corporate governance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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