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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.
Bibliographical noteFunding Information:
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].
© 2023 Elsevier Inc.
- Consumer demand
- Consumption tax
- Corporate innovation
- Corporate transformation
- Innovation strategies
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- 1 Finished
WEI, L., LIU, L., FOK, C. K. & KIM, J. B.
1/01/20 → 30/06/22
Project: Grant Research