&D tax credits to startups via the M&A channel. We show that when established firms become eligible for R&D tax credits, they … increase their R&D and M&A activity. In particular, they acquire more venture capital (VC)-backed startups, but not non …-VC-backed firms. Moreover, the impact of R&D tax credits on firms’ R&D is increasing with their acquisition of VC-backed startups. The …