臺大管理論叢第31卷第2期

133 NTU Management Review Vol. 31 No. 2 Aug. 2021 from endogeneity problems because the result may be driven by omitted variables. Accordingly, the abovementioned studies may not identify the actual effect of the Biopharmaceutical Act because these papers do not address the potential endogeneity. To prevent the endogenous problem, we adopt Difference-in-difference (DID) approach to investigate. Namely, relative to control firms (i.e. firms could not obtain the benefits of the Biopharmaceutical Act), how treated firms (i.e. approved biopharmaceutical firms) respond to the exogenous shock of the Biopharmaceutical Act.7 Before the DID approach, we use the Propensity Score Matching (PSM) method to identify comparable control firms which have characteristics similar to those of approved biopharmaceutical firms. For the control firms, we first consider biopharmaceutical firms which are not approved by the Biopharmaceutical Act. The intra-industry comparison between approved and unapproved firms enables us to identify the change in innovation from obtaining benefit from the Biopharmaceutical Act. Further, industries with higher R&D intensity are more likely to experience the innovation underinvestment problem (Brown et al., 2017). Yang et al. (2012) find that tax credits are more effective for R&D in industries with higher R&D intensity and suggest that the government should establish tax credits across industries. As a result, we use the high-tech industry as a comparable control group since high-tech firms also have great R&D underinvestment problems; however, they cannot benefit from the Biopharmaceutical Act. This inter-industry comparison helps to evaluate whether the Biopharmaceutical Act is effective only for biopharmaceutical firms. We collect firms approved under the Biopharmaceutical Act from the “2018 Biotechnology Industry White Paper of Bureau of Industry”, Ministry of Economic Affairs (2018)(2018 生技產業白皮書). From 2007 to 2018, there are 134 approved biopharmaceutical firms, with 65 of these being listed firms. Accounting information is collected from the Taiwan Economic Journal (TEJ) database. We use R&D intensity (the ratio of R&D expenditure to total assets) as the proxy of R&D investments and adopt patent adjusted citation as the proxy of innovation quality. The patent data are collected from the European Patent Office (EPO) Worldwide Patent Statistical Database (PATSTAT), from which we choose patents applied with the United States Patent and Trademark Office 7 The control firms are matched firms for the approved biopharmaceutical firms. Because the approved biopharmaceutical firms receive the Biopharmaceutical Act benefits, the control firms are the ones which do not obtain the benefits from the Act.

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