Publication Type

Journal Article

Publication Date

1-2009

Abstract

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

Keywords

Capital structure, Tax, Bank loans, China

Discipline

Asian Studies | Taxation

Research Areas

Accounting Information System

Publication

Journal of Banking and Finance

Volume

33

Issue

1

First Page

30

Last Page

38

ISSN

0378-4266

Identifier

10.1016/j.jbankfin.2006.10.030

Publisher

Elsevier

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

https://doi.org/10.1016/j.jbankfin.2006.10.030

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