The impact of tax integrity on corporate innovation: evidence from China

ABSTRACT

This study analyzes the impact of enterprise integrity on corporate innovation from the perspective of the contract theory. We used the tax credit ratings of listed firms provided by China’s State Administration of Taxation from 2014 to 2017 to measure enterprise integrity. Our results suggest that enterprises with tax integrity have a higher intensity of research and development (R&D) investment than those without. In addition, institutional investors and financing constraints play an incomplete intermediary role between tax integrity and corporate innovation. The impact of tax integrity on corporate innovation is heterogenous; tax integrity has a more significant impact on state-owned enterprises, non-high-tech enterprises, and enterprises in areas with lower marketization levels. This study does not only complement the theoretical research on integrity and corporate innovation; it also provides empirical evidence for stakeholders to understand the economic consequences of integrity from the perspective of the contract theory.

KEYWORDS:

• Integrity
• corporate innovation
• institutional investors
• financing constraints

JEL codes:

• M14
• H21
• O32

Acknowledgments

We are very grateful to the anonymous referees for their insightful comments and helpful suggestions to improve this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Project of Philosophy and Social Science Planning of Guangdong Province, China [GD18XGL18].