Characteristics and performance of research and development tax credit users

Thesis (D.B.A.)--Boston UniversityThis paper examines the firm-specific characteristics, the R&D spending, and R&D performance of U.S. R&D tax credit users (i.e., firms with currently earned R&D tax credits). Prior literature finds that the R&D tax credit is effective in increasing R&D expenditures and reducing managers' myopic behavior. However, most of these findings are based on estimated R&D tax credits rather than actual R&D tax credits. In contrast, I use actual R&D tax credits reported by the firms in their 10-Ks. I examine three issues related to the use of R&D tax credits. First, I investigate whether the likelihood of using the credit varies with characteristics related to research ability and tax advantages of firms. Next, I analyze whether the use of R&D tax credit increases real R&D spending. Finally, I explore if the tax credit impacts R&D performance, by examining innovation quality, future pre-tax profitability, and return volatility. The results are consistent with my hypotheses. Firms with more research ability and tax advantages are more likely to use R&D tax credits. I find that R&D tax credits increase real R&D spending. Finally, compared to the R&D of non-credit users, the excess qualified research of tax credit users contributes to better innovation quality and higher return volatility, but lower pre-tax profitability. Overall, these findings are consistent with the stated congressional purposes in enacting the R&D tax credit provisions