Study On Debt Financing Decision Model Considering Tax Difference

Chinese listed companies are often troubled by agency problem, and their financial goal is often to maximize the benefit of the majority shareholders or that of managerial level rather than the total value of the company.On the other hand the present research paid little attention on the mechanism of tax of different types'influence on the debt financial decision, which lead to the limitation of traditional capital structure theory in explaining the effect of company tax on the financing decision of Chinese listed companies. The lagging of theory research is harmful to scientific financing decision or the effect of tax policy.In order to solve this problem, this paper researches the path, mechanism and effect of tax on debt financing decision, and establishes the financing decision model considering the difference of tax policy.Firstly, the tax preference of Chinese listed companies'income tax is discussed. After discussing the policy about tax preference of Chinese companies, the tax preference of Chinese listed companies is analyzed and is compared with its tax burden by statistical analysis and regression analysis. It is found that state owned listed companies enjoy less tax preference while the companies without tax rate preference enjoy more tax base preference and tax credit (TBP&TC), and the tax burden rather than the tax preference of listed companies with big scale, high profit level and those from industries of fierce competition or from high level market development regions is high because of their low debt level.Then, four path of tax affecting the debt financing decision is studied including debt financing benefit, financial distress cost, the probability of financial distress and the opportunity cost of not using tax preferences completely. After analyzing the financial goal of Chinese listed companies, the benefit function and debt financing benefit of different interest groups including the majority shareholders and managerial level based on Free Cash Flow Theory and it is found that high tax rate raises debt financing benefit, and that the financing benefit and the sensitivity of debt financing benefit to tax rate are both lower than the prediction of MM theory. By multi-regression analysis it is found that more tax base preference and tax credit rather than high or low tax rate decrease financial distress cost and by LOGISTIC regression analysis it is found that high tax rate may increase the probability of financial distress.By analyzing the condition of not using tax preferences completely, and the amount of the tax preferences not using,it is found that the opportuninty cost of not using tax preferences can be increased by tax base preference and tax credit.Also, the target debt level is deduced and tested empirically considering the four path mentioned. First, the optimal debt level judged by the agent and the degree of debt conservatism is deduced by establishing a mathematic model considering tax rate, debt financing benefit, financial distress cost, the probability of financial distress and the opportunity cost of not using tax preferences completely. Then the degree of debt conservatism of Chinese listed companies is appraised and the relationship between debt financing goal and debt financing decisions is tested, which shows that the debt policy of Chinese listed companies is very conservative, and that the target debt level means the desire of the majority shareholders and managerial level, and that some corporate governance mechanism such as independent director mechanism may limit the agents'behavior of self-interest.Last, the decision model of debt financing considering agency conflicts and tax policy is established and tested empirically. It is found that the effect of tax policy on debt policy is different under different agency conditions, and that effect of different tax preference on debt policy is also different, and that the relationship between tax and debt level and that between tax and the degree of conservation is different.This paper includes three main innovative work. First, a debt financing model considering tax difference is established under the condition of Principal-agent circumstances.Second, a theory model about financial distress considering tax difference is etablished and empirically tested in order to research the the influence of tax on financial distress, which discovers the path of tax rate's influence on debt financing decision.Third, a LOGISTIC regression model is established with ETRR as the proxy for the level of tax base preference and credit, in order to research the influence of tax base preference and credit on tax, which discovers the characteristics of tax preference except tax rate.This paper is of great useful for listed companies to use the tax policy and to make financial decision more scientificly, and for government to develop the effect of tax policy.