Research On Tax Burden, Financing Decision And Enterprise Value

With the development of social economy and continuous improvement of the tax system, taxes have played an increasingly significant role in economic benefits of businesses and individuals. It has become an influence on the decision tree of enterprises, which cannot be overlooked. As Miller (1988) says in The Modigliani-Miller Propositions After Thirty Years, the U.S. tax system is a pervasive force on business decisions of many kinds, but especially so on the class of financial decisions treated in the MM propositions. Tax considerations have for that reason always figured prominently in the field of finance. However, since the theorem of MM, two questions have existed and no agreement is achieved till now, that is, how taxes affect financing decisions and how financing decisions affect the enterprise value.On the basis of the systematical summary and absorption of research results in this field, the thesis conducts scientific calculation of tax burden of Chinese listed companies, establishes a unified research framework of the logical relationship among tax burden, financing decisions and enterprise value and then carries out adequate theoretical analysis and empirical test. The empirical study of Chinese listed companies aims at offering further empirical evidences on the applicability of the classical capital structure theory and related theories in China and making beneficial supplement for theories. By combining normative research and empirical analysis, the thesis deeply analyzes the relation among tax burden, financing decisions and enterprise value. The thesis consists of five parts as follows:The first part is to put forward the issues, which is the starting point of the research. It includes research background, research significance, research framework and main content, research methods, innovative points, shortcomings, and so on. It proposes a framework of logical analysis and set up a research system for the research mentioned in the following chapters.The second part is the theoretical basis and the theoretical starting point of the research. It includes two sections:the first section combs through and sums up the literature relevant to the relationship among tax burden, financing decisions and enterprise value; the second section is the elaboration of basic theories of tax burden, financing decisions and enterprise value. Through the combing, analysis and summarization of this part, the solid theoretical foundation has been laid for the research.The third part is the theoretical analysis of logical relations among tax burden, financing decisions and enterprise value. Firstly, it explains the theoretical analysis framework of effects of tax burden on financing decisions. The theoretical analysis is implemented through three main paths:First, tax burden affects enterprise debt financing; Second, tax burden affects the choice of the ways of enterprise financing; Third, tax burden influences trade-off of tax benefit and bankruptcy cost, in turn, affects financing decision. Secondly, it explains the theoretical analysis framework of effects of financing decisions on enterprise value. The theoretical analysis is implemented through five main paths:First, debt financing affects enterprise value through its corporate governance effect; Second, the tax shield value of debt financing affects enterprise value; Third, the interaction effect of debt financing and tax burden influences enterprise value; Fourth, equity financing through influencing the value of equity affects enterprise value; Fifth, equity financing through equity structure influences corporate governance, and corporate governance affects the enterprise value. Finally, it explains the theoretical analysis framework of effects of tax burden on enterprise value by making financing decisions, that is, mediating effects of financing decisions. The theoretical analysis is implemented through two main paths:First, tax burden by debt financing influences enterprise value; Second, tax burden through capital structure influences enterprise value.The fourth part is the empirical research. On the basis of three theoretical frameworks constructed in the third part, it defines the analysis framework and content of the empirical research. According to the research requirements, it establishes fixed effects regression model, mixed effects regression model and Logit regression model, empirically tests the relations among three models and then achieves the empirical conclusions.The fifth part is the research results, implications and limitations. In terms of the above theoretical analysis and empirical conclusions, it summarizes research results as well as implications, and points out limitations and future focus of the research.The thesis comes to the conclusions as follows:(1) Both tax burden and bankruptcy cost have remarkable influence on the financing decisions of enterprises. It reflects in seven aspects:the heavier tax burden, the more possibility to select debt financing; the heavier tax burden, the more possibility to increase the proportion of debts and the higher debt financing rate; tax effects of debt financing and bankruptcy cost will be balanced during the process of making financing decisions; the equity financing will be selected when the marginal tax benefit is less than marginal bankruptcy cost; the debt financing will be selected when the marginal tax benefit is more than marginal bankruptcy cost; the tax benefit of debt and the bankruptcy cost will be balanced when the capital structure is adjusted; the increase of the proportion of debts will slow down with the influence of bankruptcy cost.(2) There is a positive correlation between debt financing and enterprise value, equity financing and enterprise value and capital structure and enterprise value. Besides, there is a positive correlation between the change of capital structure and the change of enterprise value. More specifically, the higher the debt financing rate, the more the enterprise value; the higher the proportion of debts in capital structure, the more the enterprise value. However, short-term borrowing of enterprise debt structure will cause the decline of enterprise value. Although debt financing and equity financing are positively related to enterprise value, the further studies show that the value of the enterprises choosing equity financing is significantly higher than the value of enterprises choosing debt financing. Thus, equity financing increases enterprise value more than debt financing. Although equity financing has various kinds of unfavorable factors which cause the loss of enterprise value, such as the negative effect of market, easily causing the occupation of the value of tradable shares by shareholders of non-tradable shares, the effect of control benefits, the cost effect of equity financing is enough to offset the influence of these negative factors. This conclusion offers further explanations for the reasons of equity financing preference of listed companies.(3) There is a positive correlation between the interaction effect of debt financing and tax burden and enterprise value. More specifically, the interaction effect between debt financing and tax burden can enhance the enterprise value. However, this positive interaction effect will be offset by the bankruptcy cost. The increase of value of enterprises with debt financing is less than that of enterprises with equity financing because the interaction effect between debt financing and tax burden is smaller than the cost effect of equity financing.(4) There is a negative correlation between tax burden of last year and enterprise value, and tax burden of the year and enterprise value.The tax burden influences enterprise value continuously. More specifically, the increase of tax burden may give rise to the decrease of the future enterprise value.Conversely, the decrease of tax burden may contribute to the increase of the future enterprise value.(5)As the intervening variable in the relation between tax burden and enterprise value, financing decisions have significant mediating effects, namely, tax burden influences financing decisions and then financing decisions eventually influence the enterprise value.It reflects in two aspects:the tax burden influences debt financing and capital structure and in turn debt financing and capital structure influence the enterprise value;the change of tax burden causes the adjustment of capital structure and in turn the adjustment of capital structure results in the change of the enterprise value.