IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v33y2009i1p30-38.html
   My bibliography  Save this article

Corporate tax, capital structure, and the accessibility of bank loans: Evidence from China

Author

Listed:
  • Wu, Liansheng
  • Yue, Heng

Abstract

In this paper, we investigate whether listed firms in China adjust their capital structure in response to an increase in the corporate tax rate. Although theories of capital structure suggest that corporate tax is an important determinant of capital structure, how exogenous changes of the tax rate affect firms' leverage decisions has not been fully explored. We examine a unique circumstance in which the Chinese government increased the corporate tax rate of firms that had previously received local government tax rebates. The evidence indicates that these firms increased their leverage when the corporate tax rate increased. Further investigation suggests that the adjustment of leverage was mostly driven by firms with a high level of access to bank loans.

Suggested Citation

  • Wu, Liansheng & Yue, Heng, 2009. "Corporate tax, capital structure, and the accessibility of bank loans: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 30-38, January.
    • Handle: RePEc:eee:jbfina:v:33:y:2009:i:1:p:30-38
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(07)00374-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. "On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-878, July.
    2. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    3. Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
    4. Chen, Jean J., 2004. "Determinants of capital structure of Chinese-listed companies," Journal of Business Research, Elsevier, vol. 57(12), pages 1341-1351, December.
    5. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    6. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    7. Givoly, Dan, et al, 1992. "Taxes and Capital Structure: Evidence from Firms' Response to the Tax Reform Act of 1986," The Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 331-355.
    8. Rajan, Raghuram G & Zingales, Luigi, 1995. "What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    9. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    10. repec:bla:jfinan:v:43:y:1988:i:1:p:1-19 is not listed on IDEAS
    11. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
    12. Scholes, Myron S & Wilson, G Peter & Wolfson, Mark A, 1990. "Tax Planning, Regulatory Capital Planning, and Financial Reporting Strategy for Commercial Banks," The Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 625-650.
    13. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.
    2. Bartholdy, Jan & Mateus, Cesário, 2011. "Debt and taxes for private firms," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 177-189, June.
    3. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
    4. Xu, Jin, 2012. "Profitability and capital structure: Evidence from import penetration," Journal of Financial Economics, Elsevier, vol. 106(2), pages 427-446.
    5. Stöckl Matthias & Winner Hannes, 2013. "Körperschaftsbesteuerung und Unternehmensverschuldung: Evidenz aus einem Europäischen Firmenpanel / Capital Structure and Corporate Taxation: Empirical Evidence from European Panel Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(2), pages 188-205, April.
    6. Céspedes, Jacelly & González, Maximiliano & Molina, Carlos A., 2010. "Ownership and capital structure in Latin America," Journal of Business Research, Elsevier, vol. 63(3), pages 248-254, March.
    7. Muhammad Yusuf Amin & Amanat Ali & Bashir Khan, 2019. "Capital Structure of Chinese Firms Across different Sectors: Does Ownership Structure Matter?," Global Economics Review, Humanity Only, vol. 4(2), pages 70-82, June.
    8. ElBannan, Mona A., 2017. "Stock market liquidity, family ownership, and capital structure choices in an emerging country," Emerging Markets Review, Elsevier, vol. 33(C), pages 201-231.
    9. Isil Erol & Dogan Tirtiroglu, 2011. "Concentrated Ownership, No Dividend Payout Requirement and Capital Structure of REITs: Evidence from Turkey," The Journal of Real Estate Finance and Economics, Springer, vol. 43(1), pages 174-204, July.
    10. Francisco Sogorb- Mira, 2002. "How Sme Uniqueness Affects Capital Structure: Evidence From A 1994-1998 Spanish Data Panel," Working Papers. Serie EC 2002-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    11. Miguel Acedo-Ramírez & Juan Ayala-Calvo & José Rodríguez-Osés, 2013. "Capital structure of small companies in the Spanish footwear sector: relevant factors," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(2), pages 155-173, June.
    12. Clemente-Almendros, José A. & Sogorb-Mira, Francisco, 2018. "Costs of debt, tax benefits and a new measure of non-debt tax shields: examining debt conservatism in Spanish listed firms," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 21(2), pages 162-175.
    13. Attiya Yasmin Javid & Qaisar Imad, 2012. "A Decomposition Analysis of Capital Structure: Evidence from Pakistan’s Manufacturing Sector," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 17(1), pages 1-31, Jan-June.
    14. Duy Linh Nguyen & Wolfgang Breuer & Bertram Ingolf Steininger, 2018. "The REIT Debt Puzzle," ERES eres2018_77, European Real Estate Society (ERES).
    15. Chen, Minjia & Matousek, Roman, 2020. "Do productive firms get external finance? Evidence from Chinese listed manufacturing firms," International Review of Financial Analysis, Elsevier, vol. 67(C).
    16. Nadja Dwenger & Viktor Steiner, 2014. "Financial leverage and corporate taxation: evidence from German corporate tax return data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 1-28, February.
    17. Michael Overesch & Dennis Voeller, 2010. "The Impact of Personal and Corporate Taxation on Capital Structure Choices," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(3), pages 263-294, September.
    18. Barakat, Mounther-Hussein & Rao, Ramesh-P, 2003. "The role of taxes in capital structure: evidence from taxed and non-taxed Arab economies," MPRA Paper 25472, University Library of Munich, Germany, revised Aug 2006.
    19. Francisco Sogorb- Mira & José Lopez- Gracia, 2003. "Pecking Order Versus Trade-Off: An Empirical Approach To The Small And Medium Enterprise Capital Structure," Working Papers. Serie EC 2003-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    20. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292, Elsevier.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:33:y:2009:i:1:p:30-38. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.