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Delayed tax rebates, cash flow, and corporate spending: A quasi-experiment from China

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  • Zhang, Haiyan
  • Lu, Fangwen
  • Wang, Dehua

Abstract

We study how firms altered their spending in response to an increase in liquidity as the Chinese government started to pay its outstanding export tax rebates in 2004. Our analytical strategy relies on the interaction between the time variation in the national repayments and cross-sectional variation in firms' pre-sample export share. The results show that the repayments increased cash flow, which encouraged firms to raise their R&D expenses and spending on executive perks. Compared with private firms, state-owned enterprises invested less in R&D, but spent more on executive perks. Our study is a step toward understanding the effect of the timing of tax-related actions.

Suggested Citation

  • Zhang, Haiyan & Lu, Fangwen & Wang, Dehua, 2024. "Delayed tax rebates, cash flow, and corporate spending: A quasi-experiment from China," China Economic Review, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:chieco:v:85:y:2024:i:c:s1043951x24000233
    DOI: 10.1016/j.chieco.2024.102134
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    More about this item

    Keywords

    Export tax rebate; Cash flow; R&D; Executive perks;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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