Does Tax Uncertainty Affect Corporate Innovation? Evidence from China

Tax incentives have become an important driving force for enterprises to ease financing constraints and promote innovation. Several existing studies focus on the tax reduction effect of corporate tax incentive policies and pay less attention to the risks engendered by tax uncertainty. This study uses sample data of A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2008 to 2020 to explore whether the predictability of corporate tax burdens has become a key restrictive factor for corporate innovation. The study finds that tax uncertainty significantly inhibits corporate innovation, and its influence channels operate mainly through corporate financing constraints and managerial shortsighted behavior. Further heterogeneity analysis finds that a better regional economic system environment, greater tax effort, and digital transformation could restrain the negative impact of tax uncertainty on enterprise innovation. This study focuses on the impact of tax risks arising from the tax reform process on enterprise innovation and proposes a multidimensional measurement method to identify corporate tax uncertainty. The results expand the economic consequences of tax uncertainty and enrich the literature on the factors influencing corporate innovation behavior. This study also expands the research on tax reform and provides an innovative perspective for interpreting enterprises’ tax mysteries. Furthermore, it provides practical implications for tax reduction reforms and guidelines for enterprise innovation