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Optimal capital structure and credit policy with bank-tax-guarantee

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  • Chen, Biao
  • Jiang, Jinglu
  • Zhu, Nanhui

Abstract

We study the optimal capital structure, credit policy and investment strategy of a small- and micro-sized enterprise that funds the expansion investment by bank-tax-guarantee, an innovative financing pattern that utilizes the superimposed effects of bank tax cooperation and bank guarantee cooperation. We show that investment is accelerated by stricter tax supervision, and is first delayed and then accelerated as the degree of tax payment increases. The optimal leverage ratio decreases with the cost of tax evasion and the degree of tax payment. The loose credit policy reduces corporate debt scale, guarantee cost and optimal leverage ratio.

Suggested Citation

  • Chen, Biao & Jiang, Jinglu & Zhu, Nanhui, 2023. "Optimal capital structure and credit policy with bank-tax-guarantee," Finance Research Letters, Elsevier, vol. 58(PA).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323006797
    DOI: 10.1016/j.frl.2023.104307
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital structure; Credit policy; Bank-tax-guarantee;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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