Effect of Corporate Income Tax and Marketization Degree on Capital Structure of Chinese Listed Companies

Yong Fan

Journal of Tax Reform, 2016, vol. 2, issue 1, 43-58

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. (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://jtr.urfu.ru/fileadmin/user_upload/site_15907/Youg_Fan_ispr.pdf

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:aiy:jnljtr:v:2:y:2016:i:1:p:43-58

DOI: 10.15826/jtr.2016.2.1.016

Access Statistics for this article

Journal of Tax Reform is currently edited by Igor Mayburov

More articles in Journal of Tax Reform from Graduate School of Economics and Management, Ural Federal University Contact information at EDIRC.
Bibliographic data for series maintained by Natalia Starodubets ().