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The tax burden of listed companies in China

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  • Der-Fen Huang
  • Ni-Yun Chen
  • Ko-Wei Gao

Abstract

This study examines factors affecting effective tax rates (ETRs) in China, using firms trading in the Shanghai and Shenzhen stock exchange markets from 1999 to 2008, and documents four key determinants, including (i) firm-specific attributes, (ii) ownership structure, (iii) industry upgrading and (iv) tax reforms in the form of cutting tax incentives. Consistent with prior findings, ETRs are positively related to firm size, as suggested by the political cost theory. Moreover, the relation between ETRs and financial leverage is nonlinear. ETRs are negatively related to financial leverage, but this relation becomes less negative as leverage keeps increasing. ETRs are also positively related to inventory intensity. On the other hand, ETRs are negatively related to the percentage of shares held by foreign stockholders. In addition, lower ETRs are found in high-tech industries which have been deemed more valuable by the government, and therefore receive more tax incentives. Finally, ETRs have increased following the 2002 tax reform, which eliminated the refunding of firms' tax prepayments. Our results offer insights for policy-makers interested in enhancing tax effects and improving the tax system in China.

Suggested Citation

  • Der-Fen Huang & Ni-Yun Chen & Ko-Wei Gao, 2013. "The tax burden of listed companies in China," Applied Financial Economics, Taylor & Francis Journals, vol. 23(14), pages 1169-1183, July.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:14:p:1169-1183
    DOI: 10.1080/09603107.2013.786163
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    References listed on IDEAS

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    1. Xing Liu & Shujun Cao, 2007. "Determinants of Corporate Effective Tax Rates: Evidence from Listed Companies in China," Chinese Economy, Taylor & Francis Journals, vol. 40(6), pages 49-67, November.
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    5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    6. Adhikari, Ajay & Derashid, Chek & Zhang, Hao, 2006. "Public policy, political connections, and effective tax rates: Longitudinal evidence from Malaysia," Journal of Accounting and Public Policy, Elsevier, vol. 25(5), pages 574-595.
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