Real effects of R&D tax policies: corporate investment decisions and stock market responses

Wang, Y. (2026) Real effects of R&D tax policies: corporate investment decisions and stock market responses. PhD thesis, University of Reading. doi: 10.48683/1926.00130979

Abstract/Summary

This thesis provides new evidence on how policy followers—including corporations and market participants—respond to the implementation of R&D tax policies. Combining literature review and empirical analyses, the thesis consists of three essays that examine the effects of both R&D tax incentive policies and anti-tax avoidance measures on corporate investment behaviour and stock market responses. Essay 1 (Chapter 3) reviews the literature on R&D tax incentives targeting small and medium-sized enterprises (SMEs). The review shows that while R&D tax incentives generally stimulate SME R&D investment, excessive subsidies may crowd out private-sector spending. In addition, SMEs often face significant obstacles in accessing these incentives, with high adjustment costs further limiting their effectiveness. Essay 2 (Chapter 4) empirically examines how royalty-related anti-tax avoidance policies, specifically addback statutes, influence corporate R&D investment decisions. This essay contributes to the ongoing debate on whether managers sacrifice shareholder interests when making R&D investment decisions under tax-driven policy changes. The results show that the enactment of addback statutes significantly reduces the market valuation of each $1 of intangible capital input, with stronger effects for firms with higher R&D efficiency. In response to this reduced valuation— reflecting higher user costs of R&D—managers gradually reduce R&D investment at the group level, particularly in firms facing greater tax pressure, and reallocate R&D inputs from less productive to more productive segments to enhance internal capital allocation efficiency. Essay 3 (Chapter 5) further empirically investigates how addback statutes influence institutional investors’ ownership decisions through the channel of income-shifting-related soft information. The findings show that addback statutes significantly reduce institutional ownership, especially in firms with lower financial reporting quality or limited tax scrutiny where investors possess greater informational advantages. Additional analyses reveal stronger reactions from short-term investors and show that institutional selling predicts subsequent stock underperformance, consistent with informed trading behaviour.

Item Type	Thesis (PhD)
URI	https://centaur.reading.ac.uk/id/eprint/130979
Identification Number/DOI	10.48683/1926.00130979
Divisions	Henley Business School > Finance and Accounting
Download/View statistics	View download statistics for this item