145 NTU Management Review Vol. 31 No. 2 Aug. 2021 industry analysis, which examines the effect of Biopharmaceutical Act by comparing approved firms with unapproved firms (control firms) in the biopharmaceutical industry since only approved firms receive the benefits of the Act. In addition, we conduct an inter-industry analysis by comparing high-tech firms and approved biopharmaceutical firms to confirm the effectiveness of policy. In Taiwan, the Biopharmaceutical Act grants tax credits only to biopharmaceutical firms, whereas the Statute for Upgrading Industries (SUI)（促進產業升級條例）, established in 1991, provides tax credits for all firms.21 Yang et al. (2012) investigate the SUI and find that the tax credits have more effect on R&D for industries with greater R&D intensity. Based on this finding, Yang et al. (2012) suggest that the government should establish various tax credits across industries. In Taiwan, the Biopharmaceutical and high-tech industries are respective the first and second highest R&D intensity industries during the period 2007 to 2017.22 Brown et al. (2017) argue that industries with greater R&D intensity are more likely to exhibit innovation underinvestment. The Biopharmaceutical Act is established to grant tax credits to the biopharmaceutical industry rather than other industries. Therefore, we choose the high-tech industry for comparison. Since the SUI grants all industries the same preferential tax treatment, comparing the Biopharmaceutical and high-tech industries helps to confirm the effectiveness of the Biopharmaceutical Act, which grants tax credits only to biopharmaceutical firms. 3.3.2 Propensity Score Matching (PSM) To conduct the intra-industry and the inter-industry analyses, we adopt PSM to identify suitable control firms and prevent sample selection bias for treated firms. Introduced by Rosenbaum and Rubin (1983), PSM is a widely used technique for finding control firms which have characteristics similar to those of treated firms. This method ensures that estimation bias is greatly reduced by comparing the outcome of innovation across treated and control firms. Previous studies generally use logistic regression to estimate the propensity score 21 The SUI is implemented from 1991 to 2019 whereas the Biopharmaceutical Act is implemented from 2007 to 2021. 22 R&D intensity, the ratio of R&D expenditures to total assets, for the Biopharmaceutical and high-tech industries is 4.08% and 3.04%, respectively.
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