The Role of Peer Effects in Firms' Usage of R&D Tax Exemptions

This paper addresses the influence of peers on firms’ adoption of R&D tax exemptions. Our study is motivated by the observation that many innovative firms do not make use of public support measures for innovation despite low adoption costs. Survey evidence suggests that the complexity of the R&D support landscape implies unawareness about public support measures, which prevents timely and full adoption. We hypothesize that a key mechanism to cope with complexity of public support schemes involves firms relying on their peers’ behaviour to inform their own adoption decision. We test this hypothesis by analysing firms' first use of a newly-introduced R&D tax exemption scheme in Belgium. We identify endogenous peer effects in industry- and location-based peer groups by exploiting the intransitivity in firms’ networks as well as variation in peer group size. The results show that, controlling for other firm-level determinants, firms’ decisions to use R&D tax exemptions are influenced by the choices of their peers, primarily in the time window immediately following their introduction. Our analysis complements the growing evidence on the important role of peer effects in firms’ decision-making. Furthermore, the findings suggest how the efficacy of R&D policy can be improved by accounting for the structure of firm networks in the communication of new support initiatives.

KELCHTERMANS Stijn;  NEICU Daniel;  TEIRLINCK Peter; 

2021-09-23

ELSEVIER SCIENCE INC

JRC112338

0148-2963 (online),   

https://www.sciencedirect.com/science/article/pii/S0148296319305697?via%3Dihub,    https://publications.jrc.ec.europa.eu/repository/handle/JRC112338,   

10.1016/j.jbusres.2019.09.059 (online),