Abstract—Innovation and technology have been central themes for the growth and development of firms in all economies. This paper examines innovation, R&D activities, and tax policy in the Chinese automotive sector. The automotive sector crucial to the country’s economy and it is known to invest heavily in innovation and technology. This study examines external factors that affect automotive firms' innovation and R&D activities: government policies, including tax policies and government subsidies and corporate ownership structures, including ownership concentration and state ownership are two examples. By using the China Stock Market Financial Statement Database and the SINA ownership structure database, this study finds that Chinese automotive firms’ expenditures in R&D activities are positively associated with state ownership, government subsidies, tax reduction, and firm size, but are negatively associated with income tax burden, ownership concentration, and investments in other assets such as inventory. The same results are also found for intangible asset such as goodwill. Overall, this study finds that government policy and ownership structure play an important role in firms’ innovation and R&D activities.

Index Terms—R&D activities, goodwill, ownership, tax rate, tax reduction, automotive sector

Cite: Tao Zeng, "Innovation, R&D Activities, and Tax Policies," Journal of Advanced Management Science, Vol. 3, No. 3, pp. 245-249, September 2015. doi: 10.12720/joams.3.3.245-249