154 The Impact of the Act for the Development of Biotech and New Pharmaceuticals Industry on Firm Innovation in Taiwan Biopharmaceutical Act. Panel B of Table 3 shows that approved biopharmaceutical firms do not significantly change their adjusted patent citations, while unapproved biopharmaceutical firms experience significantly reduced adjusted patent citations for the time interval (t-1, t+1). In this short time interval, the DID estimators of adjusted patent citations are significantly positive, implying that the approved biopharmaceutical firms have significantly higher innovation output than unapproved biopharmaceutical firms after the Biopharmaceutical Act. Accordingly, the resul t s of the DID es t imators show that compared to unapproved biopharmaceutical firms, the Biopharmaceutical Act encourages approved biopharmaceutical firms to increase their input into innovation activities, leading to higher innovation quality. In addition, both panels of Table 3 show that there are no significant DID estimators for the time intervals (t-2, t+2) and (t-3, t+3), implying that the influence of the Biopharmaceutical Act on innovation input and output has only a short-term effect. This result is consistent with David et al. (2000), who find that the recipients of tax credits tend to concentrate on projects with short-term prospects. 4.3.2 Difference-in-differences Regression (DID Regression) To obtain more accurate results, we conduct the DID regression by additionally considering the heterogeneous dynamics of other variables for innovation measures. Table 4 shows the DID regression results for the intra-industry analysis. Panel A of Table 4 shows the DID regression results for R&D investment. For matched firms the significantly negative coefficients of After show that all biopharmaceutical firms reduce their R&D investments after the Biopharmaceutical Act. In addition, the significantly negative coefficients of Treatment indicate that the approved biopharmaceutical firms on average have lower R&D investments than the unapproved biopharmaceutical firms. Further, the significantly positive coefficients of the interaction term, After×Treatment, show that compared with unapproved biopharmaceutical firms, approved biopharmaceutical firms have significantly higher R&D investments after the approval. By combining the coefficient results of Treatment and After×Treatment, we find that relative to control firms, the Biopharmaceutical Act encourages the group of treated firms, which have lower R&D intensity, to improve their R&D input. Accordingly, unlike the unapproved biopharmaceutical firms, the approved biopharmaceutical firms, which respond to the exogenous shock of the Biopharmaceutical Act and receive its benefits, are induced to improve their input into innovation activities.
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