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Capital market access and innovation efficiency: A natural experiment from China’s pilot VAT reform in 2012

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  • Liu, Duan
  • Zhou, Qianzhen
  • Chen, Shiqi
  • Wan, Hong
  • He, Hongbo

Abstract

This study analyzes the evolution of how seasoned equity offerings in the Chinese stock market affect corporate technological innovation by considering the easing of financing constraints through a reduced corporate tax burden. We use 2007–2016 data on listed manufacturing firms registered in the Chinese provinces and cities where a pilot reform program that replaced the business tax with a value added tax (VAT) was implemented in 2012. We explore the changes in and causes of the impacts of seasoned equity offerings on corporate R&D investment, technological innovation output, and technological innovation efficiency before and after the implementation of the pilot reform. Our empirical findings are as follows. (1) Generally, the seasoned equity offerings of listed firms in the manufacturing industries have a significantly positive effect on the firms’ current R&D investment and subsequent technological innovation output. (2) This positive effect shifts along with changes in corporate financing constraints and the dimensions of technological innovation. The pilot VAT reform has significantly changed how manufacturing firms’ seasoned equity offerings affect their R&D investments and technological innovation output. The positive effects of seasoned equity offerings on corporate R&D investment increase after the pilot reform, while the positive effects on the output of technological innovation decrease. (3) Finally, we find that seasoned equity offerings have a negative impact on firms’ technological innovation efficiency after the pilot VAT reform. Corporate governance plays a prominent role.

Suggested Citation

  • Liu, Duan & Zhou, Qianzhen & Chen, Shiqi & Wan, Hong & He, Hongbo, 2021. "Capital market access and innovation efficiency: A natural experiment from China’s pilot VAT reform in 2012," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 549-566.
    • Handle: RePEc:eee:reveco:v:71:y:2021:i:c:p:549-566
    DOI: 10.1016/j.iref.2020.09.026
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    Cited by:

    1. He, Lerong & Jiang, Xiaozhen & Fang, Liting, 2023. "Tax policy reform and corporate innovation in China," Finance Research Letters, Elsevier, vol. 55(PA).

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    More about this item

    Keywords

    Business tax; VAT; R&D investment; Seasoned equity offering; Technological innovation efficiency; Technological innovation output.;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • 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

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