R&D Tax Credits, Technology Spillovers, and Firms’ Product Convergence

49 Pages Posted: 9 Feb 2023

See all articles by Seong K. Byun

Seong K. Byun

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate

Jong-Min Oh

SungKyunKwan University (SKKU) - SKK Business School

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: February 7, 2023

Abstract

Using a difference-in-differences (DiD) setting that leverages the staggered adoption of R&D tax credits across the U.S. states, we show that after a firm receives the tax credits, products of its peers become significantly more similar to the recipient firm. Such product convergence is particularly strong when peer firms face greater pressure from market participants to uphold short-term performances. We further show that the effect of R&D tax credits likely works through the increased technology spillovers, which motivate peers to imitate instead of differentiating. Accordingly, we show that peer firms shift their patent composition from breakthrough to incremental innovations following the R&D tax subsidy.

Keywords: R&D Tax Credits, Product Offering Strategies, Technology Spillovers

JEL Classification: G28, G32, O32

Suggested Citation

Byun, Seong K. and Oh, Jong-Min and Xia, Han, R&D Tax Credits, Technology Spillovers, and Firms’ Product Convergence (February 7, 2023). Available at SSRN: https://ssrn.com/abstract=4351327 or http://dx.doi.org/10.2139/ssrn.4351327

Seong K. Byun

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284
United States

Jong-Min Oh (Contact Author)

SungKyunKwan University (SKKU) - SKK Business School ( email )

25-2, Sungkyunkwan-ro, Jongno-gu
Seoul, 03063
Korea, Republic of (South Korea)

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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