Investigating the Effects of Government Interventions on the Firms' Innovative Performance: A Case Study of Knowledge-Based ICT Companies

Financial and tax incentives are considered as one of the most important and effective tools for countries to innovate in private enterprises. In order to analyze this hypothesis, the financial facilities and tax exemptions under the law for supporting knowledge-based firms will be considered and its impact on the performance of small knowledge-based firms in the ICT category will be evaluated. The Iranian “Knowledge-based Institutions” Act certifies selected high-tech firms as “knowledge-based” firms and offers them policy incentives (e.g. a fifteen-year sales tax exemption and low-interest financing for technology development and commercialization). With the approval of the law for supporting knowledge-based firms in 2010, a new wave in Iran’s science, technology and innovation system began with a focus on the knowledge-based economy and innovation-based. The impact of input and output additionality on these supports will be analyzed by examining changes in R&D manpower, new product, and sales of knowledge-based firms, before and after receiving different combinations of policy tools in Small-sized knowledge-based firms (with fewer than 50 employees). The 2k Factorial Design approach has been used to evaluate the impact of policies and the interaction of tools. The results show that the significant effect of facilities on R&D employees and the interaction effect of facilities and tax exemptions on new products. Therefore, it can be concluded that although the knowledge-based firms have been able to use the incentives to increase the R&D manpower and produce new products, they have not been very successful in selling these products in the market.