Transforming Firm Innovation : International Evidence on Consumption Tax Adoption

Chen LIN; Lai WEI; Ying XU

doi:10.1016/j.frl.2023.104137

Transforming Firm Innovation : International Evidence on Consumption Tax Adoption

Chen LIN^*, Lai WEI, Ying XU

^*Corresponding author for this work

FACULTY OF BUSINESS

Research output: Journal Publications › Journal Article (refereed) › peer-review

Abstract

This study examines the effect of consumption tax adoption on firm innovation. Using a cross-country sample from 1990 to 2015, we find that firms decrease their innovation intensity but manage to maintain their innovation quality following the tax adoption. Further analyses reveal that firms primarily decrease low-quality innovation in response to the decrease in consumer demand following the tax adoption. They also exhibit higher originality and explore a broader set of new knowledge during innovation, which helps differentiate their products to compete for customers. However, we find that firms’ ability to transform innovation strategies depends on their pre-existing financial capability.

Original language	English
Article number	104137
Journal	Finance Research Letters
Volume	56
Early online date	23 Jun 2023
DOIs	https://doi.org/10.1016/j.frl.2023.104137
Publication status	Published - Sept 2023

Bibliographical note

Publisher Copyright:
© 2023 Elsevier Inc.

Funding

We would like to thank Samuel Vigne (the editor) and two anonymous referees for their helpful comments and constructive suggestions. All the remaining errors are our own. Lin would like to acknoledge the financial support from the National Natural Science Foundation of China [No. 72192841] and from the Research Grant Council of the Hong Kong Special Administrative Region, China [No. T35/710/20R]. Wei would like to acknowledge the financial support from the Research Grant Council of Hong Kong SAR [No. 13501619]. Xu would like to acknoledge the financial support from Zhejiang Gongshang University Project of the Ministry of Commerce [No. 2021SWB017].

Keywords

Consumer demand
Consumption tax
Corporate innovation
Corporate transformation
Innovation strategies

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

10.1016/j.frl.2023.104137

Cite this

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title = "Transforming Firm Innovation : International Evidence on Consumption Tax Adoption",

abstract = "This study examines the effect of consumption tax adoption on firm innovation. Using a cross-country sample from 1990 to 2015, we find that firms decrease their innovation intensity but manage to maintain their innovation quality following the tax adoption. Further analyses reveal that firms primarily decrease low-quality innovation in response to the decrease in consumer demand following the tax adoption. They also exhibit higher originality and explore a broader set of new knowledge during innovation, which helps differentiate their products to compete for customers. However, we find that firms{\textquoteright} ability to transform innovation strategies depends on their pre-existing financial capability.",

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author = "Chen LIN and Lai WEI and Ying XU",

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N2 - This study examines the effect of consumption tax adoption on firm innovation. Using a cross-country sample from 1990 to 2015, we find that firms decrease their innovation intensity but manage to maintain their innovation quality following the tax adoption. Further analyses reveal that firms primarily decrease low-quality innovation in response to the decrease in consumer demand following the tax adoption. They also exhibit higher originality and explore a broader set of new knowledge during innovation, which helps differentiate their products to compete for customers. However, we find that firms’ ability to transform innovation strategies depends on their pre-existing financial capability.

AB - This study examines the effect of consumption tax adoption on firm innovation. Using a cross-country sample from 1990 to 2015, we find that firms decrease their innovation intensity but manage to maintain their innovation quality following the tax adoption. Further analyses reveal that firms primarily decrease low-quality innovation in response to the decrease in consumer demand following the tax adoption. They also exhibit higher originality and explore a broader set of new knowledge during innovation, which helps differentiate their products to compete for customers. However, we find that firms’ ability to transform innovation strategies depends on their pre-existing financial capability.

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KW - Consumption tax

KW - Corporate innovation

KW - Corporate transformation

KW - Innovation strategies

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DO - 10.1016/j.frl.2023.104137

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JO - Finance Research Letters

JF - Finance Research Letters

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Transforming Firm Innovation : International Evidence on Consumption Tax Adoption

Abstract

Bibliographical note

Funding

Keywords

UN SDGs

Access to Document

Other files and links

Customers’ Inventory Turnovers and Suppliers’ Inventory Investment Efficiencies (顧客庫存周轉率與供應商庫存投資效率)

Cite this

Transforming Firm Innovation : International Evidence on Consumption Tax Adoption

Abstract

Bibliographical note

Funding

Keywords

UN SDGs

Access to Document

Other files and links

Projects

Customers’ Inventory Turnovers and Suppliers’ Inventory Investment Efficiencies (顧客庫存周轉率與供應商庫存投資效率)

Cite this