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Technological diversification and corporate sustainable economic development: A dual policy perspective of innovation incentives and investment incentives

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  • Wang, Zikun
  • Ye, Muxi
  • Cheng, Ting

Abstract

Tax-based fiscal incentives are widely employed to stimulate innovation and investment, yet how these policy instruments interact with firms' technology strategies to shape long-run competitiveness remains insufficiently understood. This paper investigates the effect of technological diversification on corporate sustainable development capability and examines the moderating roles of two key fiscal policies in China: The R&D expense super deduction, representing an innovation incentive, and accelerated depreciation for fixed assets, representing an investment incentive. Using a panel of Chinese listed firms, we document that technological diversification significantly enhances firms' sustainable development capability, a finding that survives instrumental variable estimation and multiple robustness checks. Mechanism analysis reveals two mediating investment channels: intangible investment, which deepens knowledge-based capabilities, and tangible asset rebalancing, which optimizes asset structure and improves operating flexibility. Crucially, both fiscal policy instruments significantly amplify the positive effect of diversification on sustainability. The R&D expense super deduction strengthens the link by lowering the cost of multi-domain knowledge exploration, while accelerated depreciation for fixed assets reinforces it by reducing the cost of converting technological outputs into production capacity. Heterogeneity analysis further shows that the effect is stronger for non-state-owned enterprises and firms in high-technology industries. These findings provide micro-level evidence on the complementary value of innovation incentives and investment incentives in enabling firms to translate diversified technology portfolios into sustained competitive advantage, offering actionable implications for the design and targeting of fiscal policy aimed at promoting corporate sustainability.

Suggested Citation

  • Wang, Zikun & Ye, Muxi & Cheng, Ting, 2026. "Technological diversification and corporate sustainable economic development: A dual policy perspective of innovation incentives and investment incentives," Economic Analysis and Policy, Elsevier, vol. 92(C), pages 777-789.
    • Handle: RePEc:eee:ecanpo:v:92:y:2026:i:c:p:777-789
    DOI: 10.1016/j.eap.2026.06.042
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    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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