The Effects of Tax Burden Stickiness and Market Competition on Enterprise Innovation Quality

[Purpose] This study investigates the effect of tax burden stickiness on the quality of enterprise innovation and analyzes the moderating effect of market competition on the relationship between them. [Methodology] Using China’s A－share listed companies in the Shenzhen and Shanghai Stock Exchanges from the CSMAR database 1999－2020 data, based on the tax stickiness model, this paper investigates the effect of tax burden stickiness on the quality of enterprise innovation. We also empirically examine the impact of tax burden stickiness on the quality of enterprise innovation under different market competition. [Findings] The empirical results show that the phenomenon of tax burden stickiness exists among listed companies in China. All other things being equal, tax burden stickiness inhibits the quality of innovation, and the effect of tax burden stickiness on the quality of innovation is lower for enterprises with higher market competition than for enterprises with lower market competition. [Implications] This study extended the tax burden rigidity theory to verify through empirical analysis how the nation’s tax system and corporate governance structure affect the tax burden rigidity and how this theory contributes to the improvement of enterprise innovation