ESM-based national innovation policy influence analysis with the panel data of listed Chinese electronic SMEs

This study uses the Event Study Methodology (ESM) to evaluate the influence of national innovation policies on small and medium size enterprises (SMEs) in high-tech industries. Originally, ESM was employed in the field of finance, and gradually it has been applied in many other fields to study the impact of a specific issue or event on organizational behaviors, including impact identification and impact duration for an event. ESM is regarded as an effective empirical research method because of its specific procedures for identifying event consequences and its explicit statistical analysis for investigating relationships among complex factors. Traditionally, most ESM applications are single event applications. However, innovation policies must be treated as a series of multiple relevant events at irregular time intervals. Employing ESM to study the impacts of innovation policies has not been attempted until now. In this paper, we use ESM to investigate the impacts of one specific type of Chinese innovation policy, namely, the tax preference policies for enterprises during the period of 2006-2010. For this study, tax preference policies have been treated as input variables and the market values of electronic companies listed on Shenzhen SMEs Stock Exchange have been selected as output variables. ESM-based empirical analysis shows that these policies have substantial impacts on enterprise performance. More specifically, the upward trends of the Average Abnormal Return and Cumulative Average Abnormal Returns are both significant for companies taking advantage of these policies, and as a result, the enactment of the policies demonstrates a positive influence on the market values of the relevant companies. This study indicates that enforcing tax preference policies is an effective approach for Chinese government to promote the development of high-tech industries by influencing innovation behaviors of individual companies.