Corporate Innovation
YANG Chen-Xi; LI Mo-Yuan; QIAO Cui-Xia
ABSTRACT：This paper empirically examines the differential effects of tax support and absorptive capacity and their interaction effects on firm innovation using a two-way fixed effects model and a mediating effects approach. The study finds that both financial and tax support and absorptive capacity promote firms' innovation output, in which absorptive capacity both provides intrinsic motivation and acts as a mediating channel for the impact of financial and tax support on firms' innovation. Absorptive capacity strengthens the role of financial subsidies in promoting firm innovation, but does not significantly enhance the policy effect of tax incentives. On this basis, it is further found that the effect of fiscal support on innovation efficiency is better than that on innovation quality and technology level, and the contribution of fiscal subsidies gradually exceeds that of tax incentives as absorptive capacity is improved. At the same time, fiscal subsidies have a greater role in driving innovation for non-state owned enterprises and the firm in highly market-oriented regions, and this effect increases with the dynamic change from low to high absorptive capacity.
KEYWORDS: financial subsidies; tax incentives; absorptive capacity; corporate innovation