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Does the value‐added tax Reform increase a firm’s collateral bank loans? Evidence from China

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  • Jing Zeng
  • Xiongyuan Wang
  • Kam C. Chan

Abstract

By leveraging the value‐added tax (VAT) Reform as an exogenous event in China, we examine the impact of the tax cut on bank collateral loan on firms. Our findings suggest that (1) The Reform allows firms to deduct the tax of purchasing fixed assets that leads to a significant increase in the firm's collateral loan amounts. (2) The transmission mechanism is due to the increased level of corporate transparency and a lowered financial risk after the Reform. (3) The impact of the Reform on collateral bank loans is more pronounced for state‐owned firms, large firms, firms far away from lenders and firms located in low financial development regions.

Suggested Citation

  • Jing Zeng & Xiongyuan Wang & Kam C. Chan, 2021. "Does the value‐added tax Reform increase a firm’s collateral bank loans? Evidence from China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 29(4), pages 681-710, October.
    • Handle: RePEc:wly:ectrin:v:29:y:2021:i:4:p:681-710
    DOI: 10.1111/ecot.12305
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