Innovation quality of firms with the research and development tax credit
Wei-Chuan Kao ()
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Wei-Chuan Kao: National Taiwan University
Review of Quantitative Finance and Accounting, 2018, vol. 51, issue 1, No 3, 43-78
Abstract:
Abstract This paper examines innovation quality of U.S. research tax credit users (i.e., firms with currently earned research tax credits). Prior literature reports that the research tax credit is effective in increasing research and development (R&D) expenditures and reducing managers’ myopic behavior. However, little is known about the real (or economic) effect of R&D tax credits, as most of these findings have been based on estimated R&D tax credits rather than actual R&D tax credits. Additionally, some researchers and the government still have concerns about the real effect of R&D tax credits by criticizing the ambiguity and complexity of the tax codes (IRC Section 41). Therefore, I use actual R&D tax credits identified in firms’ 10-K and state R&D tax credits as identification tests to reduce endogeneity issues. My results indicate that research generating R&D tax credits contributes to better innovation quality and higher return volatility but lower pre-tax profitability. Overall, these findings imply that enacting the R&D tax credit provisions would trigger better innovation.
Keywords: Innovation; Profitability; Research and development; Research and experimentation tax credit; Tax credits; Tax incentives (search for similar items in EconPapers)
JEL-codes: H25 M41 O31 O32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:51:y:2018:i:1:d:10.1007_s11156-017-0661-x
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DOI: 10.1007/s11156-017-0661-x
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