Does access to credit reduce SMEs’ tax avoidance? Evidence from a regression discontinuity design

Xiaowei Kong (), Deng-Kui Si (), Haiyang Li () and Dongmin Kong ()
Additional contact information
Xiaowei Kong: Dongguan University of Technology
Deng-Kui Si: Qingdao University
Haiyang Li: Zhongnan University of Economics and Law
Dongmin Kong: Huazhong University of Science and Technology

Financial Innovation, 2021, vol. 7, issue 1, 1-23

Abstract: Abstract This study investigates the effect of targeted reserve requirement ratio cuts (TRRRCs) on tax avoidance among small and micro enterprises (SMEs) with operating revenues below specific cutoffs in China. Using a regression discontinuity design, we causally show that, by increasing loan availability, TRRRCs significantly alleviate the financial constraints and cash dependence of SMEs and consequently reduce tax avoidance. This is especially the case among firms with lower market power and higher entertainment and travel costs. Our findings provide evidence for the real effect of TRRRCs on corporate tax avoidance and show the inclusive effect of TRRRCs on SMEs. In doing so, we indirectly reveal a rent-seeking channel underlying bank lending, thus offering clear policy implications for regulators.

Keywords: Access to finance; Small and micro enterprises (SMEs); Tax avoidance; Targeted reserve requirement ratio cuts (TRRRCs) (search for similar items in EconPapers)
JEL-codes: E52 G32 H25 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1186/s40854-021-00235-3 Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:fininn:v:7:y:2021:i:1:d:10.1186_s40854-021-00235-3

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

DOI: 10.1186/s40854-021-00235-3

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().