141 NTU Management Review Vol. 31 No. 2 Aug. 2021 follows. The Biopharmaceutical Act grants the managers and employees of the firms a share and share warrant. This regulation reduces the agency problems between managers and shareholders and thus increases the managers’ incentive to invest in R&D. In addition, the Biopharmaceutical Act also relaxes restrictions on employees to increase the collaboration between firms and academic institutions. This can increase the effectiveness of R&D spillover from other institutions to biopharmaceutical firms. Therefore, the improvement effects encouraged by these non-tax credit treatments such as spurring managers’ motivation and increasing cooperation opportunities tends to support the agency theory and spillover theory in explaining R&D underinvestment. 3. Data and Methodology 3.1 Data The study investigates the influence of the Biopharmaceutical Act on firm’s innovation for biopharmaceutical industry and high-tech industry. The biopharmaceutical industry and the high-tech industry are classified based on the definitions from the Taiwan Stock Exchange.11 We collect firms which are approved under the Biopharmaceutical Act from the 2018 Biopharmaceutical Industry White Paper of Bureau of Industry, Ministry of Economic Affairs.12 From 2007 to May 2018, 134 biopharmaceutical firms are approved by the Biopharmaceutical Act, 65 of which are listed firms.13 There are 85 firm-year observations from the listed approved firms. From 2007 to 2017, 148 biopharmaceutical firms were not approved by the Biopharmaceutical Act. In addition, there are 11309 firmyear observations of the high-tech industry. We obtain the accounting information from 11 The definitions of the biopharmaceutical industry and high-tech industry are presented in Section 1. 12 If companies seek to be approved as biopharmaceutical companies, they should meet the requirements of the Biopharmaceutical Act. These regulations include “Regulation of Shareholder Investment Deduction for Biotech and New Pharmaceuticals Industry”（營利事業適用生技新藥公司股東投資 抵減辦法）and “Regulation of Investment Deduction for Research and Development and Personnel Training Expenditures of Biotech and New Pharmaceuticals Industry”（生技新藥公司研究與發展 及人才培訓支出適用投資抵減辦法）. Of these regulations, the most important requirement is that companies whose R&D expenses should have a significant proportion of their total operating income or paid-in capital. 13 The approved firms include firms listed in the stock exchange market, over-the-counter market, and emerging stock market, and also include unlisted companies.
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