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

Author

Listed:
  • Wenyan Sun

    (School of Economics, Ocean University of China, Qingdao 266100, China)

  • Kedong Yin

    (Institute of Marine Economy and Management, Shandong University of Finance and Economics, Jinan 250014, China
    School of Management Science and Engineering, Shandong University of Finance and Economics, Jinan 250014, China
    Ocean Development Research Institute, Major Research Base of Humanities and Social Science of Ministry of Education, Ocean University of China, Qingdao 266100, China)

  • Zhe Liu

    (School of Economics, Ocean University of China, Qingdao 266100, China
    School of Business and Management, Queen Mary University of London, Mile End Road, London E1 4NS, UK)

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.

Suggested Citation

  • Wenyan Sun & Kedong Yin & Zhe Liu, 2021. "Tax Incentives, R&D Manipulation, and Corporate Innovation Performance: Evidence from Listed Companies in China," Sustainability, MDPI, vol. 13(21), pages 1-16, October.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:21:p:11819-:d:664983
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    1. Yi Shen & Qingsong Ruan, 2022. "Accounting Conservatism, R&D Manipulation, and Corporate Innovation: Evidence from China," Sustainability, MDPI, vol. 14(15), pages 1-25, July.

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