Cash Holdings, Tax Incentives And Corporate R&D Investment

With the rapid development of science and technology, innovation has become animportant feature for country to promote the competive. As early as2006,the NationalScience and Technology Conference clearly stated the goal "By2020, the capability ofChina’s independent innovation significantly will be enhanced and China will step intoan innovative country."; The18th National Congress of the Communist Party of Chinaonce again stressed that technological innovation was related to the social productivityimprovement and the whole national strength, so we must placed it in the importantsituation. R&D activities occupy a central part of innovation activities and in2012,ourR&D funding intensity reached its highest level of1.98%, exceeding the average levelof the EU28countries Which was1.97percent, but its20year cumulative investmentintensity is less than the two years R&D investment of United States and four yearsR&D investment of Japan.In conclusion,our country still needs to enhance strengthen of the R&D investment,and as the main body of innovation,enterprise study on how to increase corporate R&Dinvestment has a very important practical meaningful. As a prerequisite for the survivaland development of enterprises, Cash holdings can directly influence on corporate R&Dinvestment, but the existing literature does not directly concern the relationship betweenthe two. Meanwhile, as visible hand tool of the government to participate in the "marketfailure",the tax incentives can avoid the market failure in some degree, promotecorporate R&D investment, and find out both tax incentives and cash holdingspromoting the amount of R&D, so this paper considers the relationship between taxincentives can adjust the relationship of cash holdings and R&D investment, and as astarting point,this article focus on the relationship of cash holdings and corporate R&Dinvestment, and the adjusting impact of tax incentives.This paper is divided into four parts: The first part illustrated the related researchesboth at home and abroad, including the study on the influence factors of R&Dinvestment, the influence of cash holding on R&D investment and the influence of taxincentives on R&D investment. The second part introduced related concepts about R&Dinvestment、cash holding and tax incentives and the basic theories about pecking ordertheory,as well as market failure. The third part gave a theoretical analysis the relation of cash holdings and investment in R&D, tax incentives and investment in R&D,as well asthe regulated effect on relationship between cash holdings and investment inR&D,which caused by tax incentives.The fourth part,in order to validateacademic analysis,this paper uses the data from2009to2013of China’s A-share listedcompanies and carries on fixed effect model analysis.This paper comes to the following conclusions: First, there is a positive correlationbetween the corporate R&D investment and cash holdings, respectively, R&Dinvestment and tax incentives and the further study found that compared with theenterprises which are listed in non-gem market, the enterprises wich are listed in gemmarket are more significant on R&D investment neithor cash holdings nor taxincentives.Second, tax incentives restrain the promoting role of cash holdings on R&Dinvestment and the further study found that compared with the enterprises which arelisted in non-gem market, the enterprises wich are listed in gem market are moresignificant on the negative regulating. Third, in addition to cash holdings and taxincentives, corporate R&D investment is also affected by company’s age, firm size, theratio of the largest shareholder, financial leverage etc, and conclusions in this paper areconsistent.Based on these conclusions,the paper proposes relevant policyrecommendations from three aspects: First,expand the scope of tax incentives andenhance the company’s initiative of R&D investment. Second,reasonable trade-off cashholding and enhance corporate value maximization. Third, risk control mechanism andstrengthen the input of R&D activities.