The effect of tax avoidance crackdown on corporate innovation

Qin Li, Mark (Shuai) Ma, Terry Shevlin

Research output: Journal article publicationJournal articleAcademic researchpeer-review

22 Citations (Scopus)


To constrain the use of intangible assets in tax-motivated state income shifting, many U.S. state governments adopted addback statutes. Addback statutes reduce the tax benefits that firms can gain from creating intangible assets such as patents. Using a sample of U.S. public firms, we examine the effect of addback statutes on corporate innovation behavior. First, the adoption of addback statutes leads to a 4.77 percentage point decrease in the number of patents and a 5.12 percentage point decrease in the number of patent citations. Second, the “disappearing patents” resulting from addback statutes have significant economic value. Third, after a state adopts an addback statute, a firm with material subsidiaries in that state assigns fewer patents to subsidiaries in zero-tax states, whereas the number of patents assigned to the other states does not change. Overall, our findings suggest that addback statutes impede corporate innovation.

Original languageEnglish
Article number101382
JournalJournal of Accounting and Economics
Issue number2-3
Publication statusPublished - Apr 2021


  • Addback statutes
  • Innovation
  • Tax avoidance crackdown
  • Tax-motivated income shifting

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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