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Tax incentives and the financialization of the real sector: Evidence from the accelerated depreciation policy in China

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  • Li, Xing
  • Shen, Guangjun

Abstract

Firms in the real sector are experiencing the process of financialization. Using data from China's listed firms, this study exploits the accelerated depreciation policy as a natural experiment, investigating the effect of tax incentives on corporate financialization. We find that the accelerated depreciation policy significantly reduces corporate financialization. We test two possible motives of precautionary saving and higher-return seeking. Our evidence supports that the latter channel is active – the accelerated depreciation policy decreases the cost of investment in fixed assets, making financial investment less attractive.

Suggested Citation

  • Li, Xing & Shen, Guangjun, 2023. "Tax incentives and the financialization of the real sector: Evidence from the accelerated depreciation policy in China," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s154461232200681x
    DOI: 10.1016/j.frl.2022.103505
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    References listed on IDEAS

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    1. Fan, Ziying & Liu, Yu, 2020. "Tax Compliance and Investment Incentives: Firm Responses to Accelerated Depreciation in China," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 1-17.
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    Citations

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    Cited by:

    1. Shen, Zhou & Sun, Sisi & Zhu, Yingtao, 2024. "Shadow banking, credit term structure, and financialization of manufacturing firms," Finance Research Letters, Elsevier, vol. 60(C).
    2. Li, Xing & Shen, Guangjun, 2023. "Do tax incentives decelerate corporate financialization? Evidence from the VAT reform in China," Economic Modelling, Elsevier, vol. 125(C).
    3. Li, Jianjun & Wu, Zhouyi & Yu, Kaijia & Zhao, Wei, 2024. "The effect of industrial robot adoption on firm value: Evidence from China," Finance Research Letters, Elsevier, vol. 60(C).
    4. Li, Shiyu & Yang, Jun, 2024. "Administrative incentives and enterprise green innovation: Based on empirical evidence from China," Finance Research Letters, Elsevier, vol. 62(PA).
    5. Zhang, Xiaoliang & Zheng, Xiaojia, 2024. "Does carbon emission trading policy induce financialization of non-financial firms? Evidence from China," Energy Economics, Elsevier, vol. 131(C).
    6. Wu, Kai & Lu, Yufei, 2023. "Corporate digital transformation and financialization: Evidence from Chinese listed firms," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Financialization; Tax incentive; Precautionary saving; Higher-return seeking;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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