臺大管理論叢第31卷第2期

142 The Impact of the Act for the Development of Biotech and New Pharmaceuticals Industry on Firm Innovation in Taiwan the Taiwan Economic Journal (TEJ) database. We collect U.S. patent data of these target firms from the European Patent Office (EPO) Worldwide Patent Statistical Database (PATSTAT) because it is more detailed and comprehensive and because it is widely used in the literature (Bena and Li, 2014; Chang et al., 2019; Chen et al., 2020; Li, Lai, D’amour, Doolin, Sun, Torvik, Yu, and Fleming, 2014). 3.2 Variables 3.2.1 Innovation Measures We use R&D intensity as the proxy for R&D investments (innovation investments) and patent adjusted citation as the proxy for innovation quality. R&D expenditure is the innovation input while patents are the innovation output. Since the Biopharmaceutical Act of 2007 specifies the investment tax credit for R&D expenditures, this Act appears to encourage the approved biopharmaceutical firms to engage in innovation input. Several studies examine the sensitivity of R&D expenditure to R&D tax credit (Eisner, Albert, and Sullivan, 1984; Mansfield, 1986; Tillinger, 1991; Hall, 1993). Innovation activities require capital infusions and R&D expenditures. R&D expenditures are related to firm size: large firms can spend more on innovation. Firm size usually does not change substantially over time. Therefore, we first adopt R&D intensity, namely the ratio of R&D expenditure to total assets, as the quantitative measure of R&D investment (i.e. innovation input).14 Second, we adopt the patent adjusted citation as the innovation quality measure.15 The patent citation is the total number of citations received from all successful patents that are filed by a firm. Patent citations have been widely used to measure the innovation output (Griliches, 1990; Hsu, 2009; Hsu et al., 2014; Trajtenberg, 1990).16 However, patent citations suffer from the inevitable truncation problem, under which later patents receive 14 We adopt R&D/total assets as the measure of R&D intensity because it is the measure mostly used in the finance literature (Brown et al., 2017; Chen et al., 2013; Franzen, Rodgers, and Simin, 2007). We do not use R&D/sales because the amount of sales tends to fluctuate more than total assets over time, leading to unstable results. 15 Cohen, Nelson, and Walsh (2000) propose that patents are more valuable for appropriating R&D returns in high R&D intensity firms such as pharmaceutical and medical instrument firms than in low R&D intensity firms. Thus, we adopt patents as the innovation measure for biopharmaceutical firms. 16 In the early studies, patent count, which is the number of patents applied by a firm, is often used to measure the quantity of innovation (Griliches, 1981). However, recently, most studies use patent citations to measure the quality of innovation.

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