Corporate patents, R&D success, and tax avoidance

Corporate patents, R&D success, and tax avoidance It is well known that research and development (R&D) tax policies are written to encourage firm innovation, a crucial driver of business growth. However, evidence on the effectiveness of tax benefits for innovation is largely anecdotal and empirical examination of the influence of innovation on firm-level taxation is still underexplored. In this study we use an archival research design to assess the implications of corporate innovation on tax avoidance. Based on a large sample of patent data from 1987 to 2010, we find that, on average, both a firm’s innovation productivity (using patent counts) and innovation quality (using patent citations) are positively associated with its tax avoidance level. Nevertheless, we find that the success of R&D investment, in terms of patent output per R&D dollar, is not associated with tax avoidance. Our study is informative for the debate about tax credit reform, such as establishing a ‘patent box’ regime for the purpose of spurring both the conduct of research and commercialization of R&D program. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Corporate patents, R&D success, and tax avoidance

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Publisher
Springer Journals
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-015-0531-3
Publisher site
See Article on Publisher Site

Abstract

It is well known that research and development (R&D) tax policies are written to encourage firm innovation, a crucial driver of business growth. However, evidence on the effectiveness of tax benefits for innovation is largely anecdotal and empirical examination of the influence of innovation on firm-level taxation is still underexplored. In this study we use an archival research design to assess the implications of corporate innovation on tax avoidance. Based on a large sample of patent data from 1987 to 2010, we find that, on average, both a firm’s innovation productivity (using patent counts) and innovation quality (using patent citations) are positively associated with its tax avoidance level. Nevertheless, we find that the success of R&D investment, in terms of patent output per R&D dollar, is not associated with tax avoidance. Our study is informative for the debate about tax credit reform, such as establishing a ‘patent box’ regime for the purpose of spurring both the conduct of research and commercialization of R&D program.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jul 19, 2015

References

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