Dividend tax and capital structure: Evidence from China

Hang Liu, Yixin Zhang and Shenghao Gao

China Journal of Accounting Studies, 2015, vol. 3, issue 3, 254-273

Abstract: The extant literature focuses mostly on the impact of corporate tax on capital structure. Few studies explore this impact from the perspective of personal tax. Evidence from a Chinese institutional background is especially limited. The 2012 dividend tax reform in China directly links individual investors’ dividend tax to the length of the share holding period. Using this reform, we find that firms with a long (short) investors’ share holding period experience a significant decrease (increase) in debt financing due to decreased (increased) dividend tax. We also show that the effect of dividend tax on capital structure is more pronounced in large dividend payout firms. Further, we find that the effect of dividend tax on debt varies among the different forms of debt financing. Our study adds to the literature on tax and corporate finance and fills a gap in Chinese research on related areas.

Date: 2015
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DOI: 10.1080/21697213.2015.1067854

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