Impact of tax incentives on corporate patient capital: evidence from income tax preferences and pretax additional deduction on R&D expenditure in China

Tax incentives not only reduce corporate tax burdens and encourage investment, but also serve as favourable signals to investors, potentially enhancing firms’ attractiveness to patient capital (PC). Using a sample of Chinese listed firms from 2007 to 2024, we examine the effects of two tax incentives: corporate income tax preferences and the pretax additional deduction for R&D expenditure (PADRDE), on firms’ PC. The results indicate that: (1) both corporate income tax preferences and PADRDE stimulate corporate PC, measured by PC ownership stability index; (2) mechanism tests suggest that alleviated financing constraints, increased innovation investment, and promoted financial transparency partially mediate the relationship between tax incentives and corporate PC; and (3) heterogeneity analyses show stronger associations between income tax preferences and corporate PC for non-SOEs, whereas the association between PADRDE and corporate PC is stronger for firms in less marketized regions and those with lower R&D intensity. Overall, the results suggest that corporate tax relief can simultaneously support supply-side upgrading and expansionary demand management. For capital market participants, corporate tax benefits may also signal stronger long-term growth prospects. During technological transitions, tax relief targeted at technologically advanced firms can help mobilize social capital for innovation and facilitate industrial upgrading.