A Study On The Financial Performance Of Enterprises Under The Policy Of Adding Deductions To R&D Expenses

In 2021,the 14 th Five-Year Plan highlighted the need to " improve the economic structure,significantly enhance the innovation capacity,and actively develop and expand strategic emerging industries such as biomedicine",and in 2022,the 20 th Party Congress clearly pointed out that " Science and technology is the first productive force and innovation is the first driving force",and proposed to improve the science and technology innovation system and strengthen the national strategic science and technology force.The policy of adding deductions to R&D expenses reduces the cost of R&D activities and eases the financial pressure faced by enterprises through additional deductions before tax,which is highly recognized by the government and enterprises,and has become an important policy tool for the state to encourage enterprises to carry out technological innovation.As one of China’s strategic emerging industries,the pharmaceutical industry is closely related to the health of the nation.The R&D activities of pharmaceutical enterprises are affected by the industry characteristics of high operating costs,long inputoutput cycles and high R&D investment thresholds,resulting in riskier R&D projects for pharmaceutical enterprises and low R&D motivation for enterprises.Such a status of industry R&D provides a suitable model for the study of the impact of the add-on deduction policy on the financial performance of enterprises.Therefore,how to overcome the shortcomings of pharmaceutical enterprises’ R&D innovation is the key and difficult point for China’s pharmaceutical industry to respond to the "innovation-driven development" strategy.As one of the most innovative large pharmaceutical companies in China,Hengrui Pharmaceuticals has always been at the top of the list in terms of R&D investment in the industry with the support of the policy.Therefore,this thesis chooses Hengrui Pharmaceuticals as a case company to explore the economic effect of the policy of adding deduction to pharmaceutical companies.Firstly,this thesis adopts a case study approach to study the policy of add-on deduction on the basis of combing relevant research literature and theories,combining the evolution of the policy of add-on deduction with the special characteristics of R&D activities in the pharmaceutical industry and the typicality of the R&D level of Hengrui Pharmaceutical to explain the reasons for choosing Hengrui Pharmaceutical as a case study object.The current situation of the application of the policy by Hengrui Pharma is analysed in terms of R&D investment,R&D cost composition and income tax deduction,and it is initially verified that the tax reduction effect of the deduction policy on corporate income tax expense is relatively obvious.Secondly,by examining the paths through which the add-on deduction policy affects financial performance,it is found that the policy has achieved the expected objectives of the policy by motivating enterprises to increase their R&D investment in two ways: reducing the cost of the R&D link and improving their endogenous financing capacity.On this basis,increasing R&D investment helps enterprises improve the efficiency of their R&D output and enhance their core competitiveness,which directly affects their financial performance and ultimately achieves the policy’s implementation effect.Again,based on Hengrui Pharma’s historical financial data,horizontal and vertical analysis of the changes in R&D investment and the four major capabilities,followed by the use of the entropy-weighted TOPSIS method to construct a financial evaluation system to further study the ranking of Hengrui Pharma’s financial performance after the application of the policy,it was found that the add-on deduction policy had a positive impact on Hengrui Pharma’s financial performance but with a lag.During the analysis,it was found that the low conversion rate of the enterprise’s R&D results,the lack of capital operation capability,the lack of targeting of the industry to enjoy the policy and the limited effect of the add-on deduction policy relief limited the policy to play its best incentive role.Finally,reasonable suggestions were made to address the existing problems.From the aspect of enterprise implementation,it was suggested that the level of capital operation should be strengthened and the efficiency of R&D should be improved,while from the aspect of policy formulation,it was suggested that the policy content should be refined to enhance the role of support and the policy targeting should be increased to enhance the benefits.Based on the existing research,this thesis explores the relationship between the policy and the financial performance of enterprises,attempts to construct the impact path of the add-on deduction policy on the financial performance of enterprises,and verifies the rationality of this path through the case study of Hengrui Pharmaceutical,aiming to provide an empirical reference for enterprises in the same industry to plan their resources rationally and improve their economic efficiency in the context of this policy,and also provides a theoretical basis for improving the details of the add-on deduction policy and activating the enthusiasm of enterprises for innovation.