Abstract
INTRODUCTION: Innovation is crucial to realize the modernization and industrialization of traditional Chinese medicine (TCM), so its incentive methods and influence mechanisms are worth exploring. Based on externality theory and imprinting theory, this paper demonstrates the significance of external support and internal resources in the innovation of TCM enterprises. METHODS: This study adopts a sample of listed TCM enterprises in China during 2007-2023 to examine the impacts and differences between innovation subsidies and tax incentives on TCM enterprise innovation. Innovation in TCM enterprises is deconstructed into five dimensions, including innovation quantity (InNum), innovation quality (InQua), substantive innovation (SubIn), strategic innovation (StrIn), and inheritance innovation (InhIn). RESULTS: It is found that the incentive effect of innovation subsidies on other dimensions of innovation in TCM firms is generally stronger than that of tax incentives, except for strategic innovation. Heterogeneity analysis indicates that the promoting effect of tax incentives is more significant in the southern TCM production region. Moreover, R&D investment mediates the relationship between innovation subsidies and innovation of TCM enterprises. Furthermore, executives with pharmaceutical backgrounds (EPB) strengthen the impact of innovation subsidies on innovation in various dimensions of TCM enterprises, while EPB only strengthens the impact of tax incentives on innovation quality and substantive innovation. DISCUSSION: The findings provide new insights for government and TCM enterprises to promote innovation.