Description:
This study aims at investigating the causality between the tax incentive of China’s accelerated depreciation policy (ADP) and firm strategic change. The evidence shows a positive causality between them. It still holds by several robustness tests with PSM-DID estimation, sample corrections, and replacing dependent and independent variables. The underlying mechanisms are that APD changes the business environment and cognition of managers which motivates managers to make strategic responses. It creates a mismatch between a firm’s internal resource endowment and its external environment, driving it to adjust its resource allocation strategies to achieve a rematch so that maintaining or improving competitiveness. It also makes managers more optimistic about future operations, thereby raising their motivations to adjust strategic behaviors to fulfill the expected benefits. The firms with less resource endowment, in less developed areas, lower organization inertia and maturity, and more competitive environments make more acuminous strategy reactions amid ADP implementation. The findings suggest that ADP has organizational flexibility and competitiveness-oriented incentives to firms in addition to economic ones, especially for those with weak resource endowment or in the stage prior to maturity