An Analysis of the Impact of Additional Tax Deductions in China on Corporate R&D Expenses — Based on the Adjusting Role of Financing Constraints

Tianjin University of Finance and Economics, School of Accounting, Tianjin, China

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Abstract

The policy of extra deduction of R&D expenses is not new under the innovation based development plan. Since the first pilot program up to the full adoption of 100 percent additional deduction, this preferential treatment has significantly made the enterprises result in greater investment in their R&D. The research sample visited by this paper is A-share listed companies, and the research analyzes the effect of changes in the additional deduction policy on the corporate R&D expenses by using a two-way fixed effect, and it also examines the effects of the financing constraints in this process. The research concludes that, the supplementary tax deduction encourages investment in corporate R&D, yet varying companies will be influenced by the alteration of policy within the same framework. Financing constraints act as moderating variables; the preferential policy facilitates the promotion of R&D costs among the companies with less financing constraints. On these findings, this paper explains the moderating effect of financing constraint on the policy incentive effect, and in addition to this, why differentiated firms are influenced differently by the same policy.