IDEAS home Printed from https://ideas.repec.org/a/mes/chinec/v55y2022i2p111-128.html
   My bibliography  Save this article

Depreciation Rate by Industrial Sector and Profit after Tax in China

Author

Listed:
  • Junmin Wan
  • Qiqi Qiu

Abstract

This study examines how asset values by industry sectors are affected by different depreciation methods. We theoretically show that estimating depreciation rate by the Perpetual Inventory Method (PIM) contains more information than the method by Depreciation Expense as Accounting Item (DEAI), which are equivalent under certain conditions. Using data of 37 industrial sectors in China from 2001 to 2016, we estimate depreciation rates by sectors using both PIM and DEAI methods, which enable us to estimate capital stock and capital efficiency by sectors. By the panel estimation, depreciation rates estimated by both PIM and DEAI methods significantly increase with the enterprise's profits after tax defined by that profits before tax minus tax. Our result is consistent with the prediction of the economic depreciation hypothesis, implying that tax shield of depreciation that raises corporate after-tax cash flows to the firm could improve corporate investments for replacement by scrapping the old equipment.

Suggested Citation

  • Junmin Wan & Qiqi Qiu, 2022. "Depreciation Rate by Industrial Sector and Profit after Tax in China," Chinese Economy, Taylor & Francis Journals, vol. 55(2), pages 111-128, March.
    • Handle: RePEc:mes:chinec:v:55:y:2022:i:2:p:111-128
    DOI: 10.1080/10971475.2021.1930297
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10971475.2021.1930297
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10971475.2021.1930297?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

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

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Yishuang & Liu, Wei & Zhang, Xiaoling & Dong, Hanmin & Zhao, Zhihui & Zhang, Zhan, 2024. "Domestic environmental impacts of OFDI: City-level evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 391-409.
    2. Wan, Junmin & Qiu, Qiqi, 2023. "Industrial investments and housing prices in China," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 832-852.
    3. Wan, Junmin, 2024. "Transmission of housing bubbles among industrial sectors," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 692-701.

    More about this item

    Statistics

    Access and download statistics

    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:mes:chinec:v:55:y:2022:i:2:p:111-128. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/MCES20 .

    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.