Open AccessPreferential Income Tax Rate and Research and Development Investment: Evidence from Small and Medium-Sized Listed Firms in China
Author(s) -
Xiaobao Song,
Chunxian Guo,
Wunhong Su
Publication year - 2019
Publication title -
accounting and finance research
Language(s) - English
Resource type - Journals
eISSN - 1927-5994
pISSN - 1927-5986
DOI - 10.5430/afr.v9n1p1
Subject(s) - endogeneity , investment (military) , economics , china , propensity score matching , instrumental variable , matching (statistics) , income tax , tax rate , demographic economics , monetary economics , labour economics , econometrics , public economics , statistics , mathematics , politics , political science , law
This study investigates the impact of a preferential income tax rate on research and development investment for small and medium-sized Chinese listed firms from 2013 to 2017. The results reveal a significantly positive relation between the preferential income tax rate and research and development investment. Such a positive relation appears to be more significant for non-state-owned firms and for firms located in provinces with higher research and development intensity. The instrumental variable method, the two-stage Heckman method and propensity score matching are employed in this study to support the finding that the preferential income tax rate has a positive external impact on research and development investment. The empirical results are robust with respect to endogeneity.