147 NTU Management Review Vol. 31 No. 2 Aug. 2021 approval of the Biopharmaceutical Act for both treated firms and control firms, and then comparing the difference between these two groups. Control firms are found using the PSM procedure. In this study, we have two control groups, one for the intra-industry and the other for inter-industry analyses. Finally, we use the t statistic to examine the significance of the DID estimator. The significance of the DID estimator can be used to explain that the innovation in approved biopharmaceutical firms is significantly different from the innovation in control firms (i.e. unapproved biopharmaceutical firms or high-tech firms) after the Biopharmaceutical Act. 3.3.4 Difference-in-differences (DID) Regression The DID estimator may not be sufficient to explain the influence of the Biopharmaceutical Act because it does not consider the heterogeneous dynamics from other variables (Buckley and Shang, 2002). In addition, most previous studies conduct only DID regressions and do not use the DID estimator. Thus, we follow previous studies (Blundell and Costa-Dias, 2009; Buckley and Shang, 2002; Lechner, 2011) to simply incorporate possible factors into the linear regression to estimate the influence of the Biopharmaceutical Act. The DID regression is: Yi,t = α0 + β∙Aftert + δ∙Treatmenti + γ∙Aftert × Treatmenti + π∙Control variablesi,t + Year fixed effect + εi,t , (1) where Yi,t denotes the measure of innovation of firm i in year t; Aftert = 1 if the firm is in or after the approval year and 0 otherwise; Treatmenti = 1 if the firm is approved according to the Biopharmaceutical Act and 0 otherwise. The time period of this regression is from 2002 to 2017.24 We respectively use R&D intensity and patent adjusted citations to measure the innovation activities in the regressions. We use firm size (natural logarithm of total assets; Huang, 2019), lagged R&D expenditure (pre-year R&D expenditure), ROA, and debt ratio to explain the R&D investment (i.e. R&D intensity). When the patent adjusted citations are the innovation measure, we follow Lerner (1994) and Becker-Blease (2011) and use 24 All results for DID regressions control for the year fixed effect. To save space, we do not show the results for the year fixed effect in the tables.

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