Abstract:

This paper examines whether innovation efficiency in Chinese listed firms is driven more by short-run tax-related conditions or by persistent firm-specific capability. Using panel data on Chinese A-share listed firms from 2012 to 2023, innovation efficiency is first estimated through stochastic frontier analysis (SFA). The paper then compares the explanatory power of capability-related and tax-related variables using pooled OLS, random-effects, and fixed-effects regressions. The results show that firm size is positively associated with innovation efficiency, while leverage is negatively associated with it across specifications. By contrast, the cleaned effective tax rate is weak and becomes insignificant once firm fixed effects are introduced. The findings suggest that innovation efficiency is better understood as a capability-based outcome than as a direct short-run policy outcome. The paper contributes by linking innovation efficiency to persistent firm heterogeneity, refining the role of tax-related conditions in the innovation process, and providing new evidence from Chinese listed firms.