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

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

Journal of Banking & Finance, 2021, vol. 125, issue C

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.

Keywords: R&D tax credits; Alternative simplified credit; Innovation performance; Innovation diversity; Corporate governance (search for similar items in EconPapers)
JEL-codes: G30 G38 O38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:125:y:2021:i:c:s037842662100039x

DOI: 10.1016/j.jbankfin.2021.106081

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