Journal of Tax Reform
Effect of Corporate Income Tax and Marketization Degree on Capital Structure of Chinese Listed Companies
Yong Fan
Central University of Finance and Economics, Beijing, China
Abstract
Using the 2008 corporate income tax reform as an opportunity, this paper constructs a Panel DID model to study the effect of corporate income tax and the degree of marketization on capital structure. Based on the 2008 Enterprise Income Tax Reform in China, accompanying with both rise and fall in the tax rate, the paper tests the adaptability of the Modigliani & Miller theory, and develops a capital structure theory in the context of China. Author’s used the financial data of 206 Chinese listed companies from 2002 to 2012. The financial data of listed companies were mainly taken from Xenophon database and GuoTaian database. The marketization index data were obtained from The Marketization Index in China: 2011 Report for the Relative Marketization Process in Various Regions. Industries was classified according to the Global Industry Classification Standard (GICS) and test the sensitivity of the capital structure to exogenous corporate tax rate change in different industries. The empirical results show that: firstly, the higher the degree of marketization is, the more significant the tax shield effect is; secondly, compared to the corporate income tax, differences in the degree of marketization exert a more significant effect on the corporate capital structure; thirdly, because of the long existence of tax incentives, debt tax shield is not significant in people’s livelihood industries and information technology industry; Fourthly, given the upward trend in the overall asset-liability ratio of Chinese companies, in order to control companies’ financial risk, we recommend to foster market reform and the use corporate income tax incentives where necessary. The results of research will provide a reference for future marketization reform and tax policies in different industries in China.
Keywords
Corporate income tax, corporate income tax reform, marketization, capital structure.
References
1. Modigliani F., Miller M. H. Corporation Income Taxes and the Cost of Capital: A Correction. American Economic Review, 1963, vol. 53, no. 3, pp. 433–443.
2. Miller M. H. Debt and Taxes. Journal of Finance, 1977, vol. 32, no. 2, pp. 261–275.
3. Myers S., Majluf N. S. Corporate Financing and Investment Decisions when Firms have Information that Investors do not have. Journal of Financial Economics, 1984, vol. 13, no. 2, pp. 187–221.
4. MacKie-Mason J. K. Do Taxes Affect Corporate Financing Decisions? Journal of Finance, 1990, vol. 45, no. 5, pp. 1471–1493.
5. Givoly D., Hayn C., Ofer A. R., Sarig O. Taxes and Capital Structure: Evidence from Firmsp Response to Tax Reform Act of 1986. Review of Financial Studies, 1992, vol. 5, no. 2, pp. 331–355.
6. Rajan R. G., Zingales L. What do we know about capital structure? Some evidence from international data. The Journal of Finance, 1995, vol. 50, no. 5, pp. 1421–1460.
7. Fang J. Ownership, Institutional Environment and Capital Allocation. Economic Research Journal, 2007, no. 12, pp. 82–92.
8. Jiang Wei, Li Bin. Institutional Environment, State-owned Property and Bank Lending Discrimination. Journal of Financial Research, 2008, no. 11, pp.116–126.
9. Yu Minggui, Pan Hongbo. Government Intervention, Development of Law and Finance, and Bank Loan for State-owned Enterprise. Journal of Financial Research, 2008, no. 9, pp. 1–22.
10. Kornai J. Economics of Shortage. Amsterdam, North-Holland Press, 1980.
11. Lin Yifu, Liu Mingxing, Zhang Qi. Policy Burden and Enterprise’s Soft Budgetary Binding: a Case Study from China. Management World, 2004, no. 8, pp. 81–89.
12. Sun Zheng, Liu Fengwei, Li Zengquan. Market Development, Government Influence and Corporate Debt Maturity Strucure. Economic Research Journal, 2005, no. 5, pp. 52–63.
13. Fuxiu Jiang, Jicheng Huang. The Process of Market-oriented and the Dynamic Adjustment of Capital Structure. Management World, 2011, no. 3, pp. 124–134.
14. Wang Yuetang, Wang Lianglian, Peng Yang. Ownership Nature of Ultimate Controller, Debt-related Tax Shields and Capital Structure. Economic Research Journal, 2010, no. 9, pp. 122–136.
15. Wang Yanming. Sensitivity Analysis of Income Tax Rate Changes On Listed Company. Economic Research Journal, 2002, no. 9, pp.74–80.
16. Titman S., Wessels R. The Determinants of Capital Structure Choice. The Journal of Finance, 1988, vol. 43, no. 1, pp. 1–19.
17. Graham J. R. Debt and the Marginal Tax Rate. The Journal of Financial Economics, 1996, no. 41, iss. 1, pp. 41–74.
18. Jensen M. C. Agency Costs of Free Cash Flow, Corporate Finance and Takeovers. American Economic Review, 1986, vol. 76, no. 2, pp. 323–329.
About Authors
Yong Fan — Professor, Vice Dean of School of Taxation, Director of BusinessTaxation Center, Central University of Finance and Economics (CUFE), (39 South CollegeRoad Haidian District, Beijing, e-mail: yongfan008@sina.com or fanyong@cufe.edu.cn)
DOI: http://dx.doi.org/10.15826/jtr.2016.2.1.016
Download full text article:
~511 KB, *.pdf
(Uploaded
29.12.2017)
Created / Updated: 31 August 2015 / 3 July 2017
© Federal State Autonomous Educational Institution of Higher Education «Ural Federal University named after the first President of Russia B.N.Yeltsin»
Remarks?
select the text and press:
Ctrl + Enter
Portal design: Artsofte
ISSN 2414-9497 (online)