Tax Loss Carryovers in a Competitive Environment*

• 成果类型: Article
• 署名作者: De Waegenaere, Anja; Sansing, Richard; Wielhouwer, Jacco L.
• 署名单位: Tilburg University; Dartmouth College; Vrije Universiteit Amsterdam
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12627
• 发表日期: 2021
• 页码: 180-207
• 关键词: research-and-development; INVESTMENT; incentives; panel

摘要

The fact that incumbent firms can immediately deduct research and development (R&D) investments from taxable income is generally believed to give them a strategic advantage over new firms that cannot deduct the investment cost, but instead generate a net operating tax loss carryover. Using an analytical model, we show that this conventional wisdom need not hold in a competitive environment. We examine operating and investment decisions in a duopolistic industry in which an initial investment in R&D yields an immediate tax benefit for one firm, but creates a net operating loss carryover for the other firm. If both firms invest in R&D, the firm with the net operating loss carryover makes more aggressive capital investment decisions following successful R&D. This may deter the incumbent firm from investing in R&D despite the lower aftertax costs of this investment. Changing the tax loss carryover rules would thus not only affects start-up or loss firms, but would also affect the investment decisions of profitable firms in the same industry.