Study On The Impact Of "Replacing Business Tax With Vat Reform" On Cash-cash Flow Sensitivity

From January 1st,2012 Shanghai's transportation industry and some modern service industries(“1 + 6” industries)took the lead in carrying out the pilot reform to May 1st,2016 fully implemented,China completed the tax reform of "replacing business tax with value-added tax".The direct effect of the reform is to eliminate deductible obstacles,solve the original double taxation problem of business tax and reduce corporate tax burden.While the deeper goal is to release corporate vitality through structural tax reduction and promote industrial structure upgrade.Existing literature pay much attention to the effect of the reform,including research on the macroeconomic impacts of fiscal and taxation systems,import and export,and economic growth,as well as micro-enterprise policy effects such as corporate tax burdens,investment,research and development,and the division effect.However,they have not yet touched on the impact on corporate cash holding policies.It is important to realize that the promotion of investment,R&D,technology introduction and other aspects by the reform requires companies to provide funding.Cash holdings as an internal source of capital will inevitably play its role after the implementation in supporting for physical investment and operation,thereby urging companies to adjust their cash holding policies.In this process,how the company's cash holding behaviors change,what the main influencing factors are,and whether the corresponding economic effect of cash holding has finally occurred so as to play a strategic role,these are issues that have been neglected but need to be explored in the impact of the reform.Based on all the above,the main research contents are as follows:First of all,the mechanism of the reform on corporate cash holding policy is the core issue of this article,as well as the theoretical innovation of this article.As an important part of a company's cash holding policy,cash-cash flow sensitivity is used to reflect the degree and enthusiasm of cash retaining,that is,the relative tendency of saving cash.This research sets forth the mechanism of the reform on corporate cash holding policy for the first time,pointing out that after the tax reform,enterprises adjust their cash holding policies in order to play the supporting role of cash holdings mainly in ways of investment(including investment in fixed assets,intangible assets and R&D investment,etc.),improving operating cash flow(including the separation of sales tax from sales income,the deduction of purchased goods and services,and the effect of tax rate changes,etc.),reducing the company's relative cash saving propensity,thereby reducing cash-cash flow sensitivity.Secondly,based on the theoretical mechanism of impact of the reform on cash-cash flow sensitivity,using A-share non-financial industry listed companies from 2011 to 2016 as research samples,and choosing the difference-in-difference(DID)model based on cash flow models proposed by Almeida et al.(2004)and system equations,the research empirically analyzes the impact of the reform on cash-cash flow sensitivity,based on which then analyzes the dynamic time effect,ownership effect and industry effect in detail,and further conducted a robustness test using PSM-DID(Propensity Score Matching-Difference in Difference).The results show that "replacing business tax with value-added tax" significantly reduced cash-cash flow sensitivity and more significant in non-state-owned enterprises and service industry enterprises.The results of dynamic effect analysis show that the policy effect has a certain time lag and long-term effects.Thirdly,to explore the influencing factors of change degree in cash-cash flow sensitivity after the reform.Since VAT is an extra-value tax and has both deductible and transferable characteristics,the impacts of the reform are also mainly transmitted through the deductive and transfer channels.This article theoretically elaborates the influence of deductive ability and tax shifting ability on the effect of the reform,and conducts corresponding empirical analysis.The results show that the stronger the tax shifting ability,the greater effect of the reform,and the stronger the deduction ability,the greater the effect of the reform.These indicate that the deduction ability and tax shifting ability directly affect the policy effects.In addition,the effects of tax shifting ability are more significant in non-state-owned enterprises,enterprises with higher market competition and service industry enterprises,while the effects of deduction ability are more significant in non-state-owned enterprises and manufacturing enterprises.Finally,on the basis of the foregoing analysis of the impact on cash holding behaviors,the corresponding economic consequences of the cash holding policy adjustment were further analyzed to explore ways and degree of achieving the strategic effect by holding cash after the reform and make the analysis of behavior and consequences more continuous.Product market investment is an important direction for corporate investment.The reform encourages companies to reduce cash holdings to support product market investment,so as to improve product market performance and competitiveness,and achieve the competitive effects of cash holding in product markets.Finally,it will help to enhance corporate value and promote corporate transformation and upgrading.Based on the above,this article analyzes the degree of the impact the reform on cash holdings competition effect and specific intermediary approaches.The results show that the reform significantly improves the competitive effect of corporate cash holdings and has certain continuity and stability.In general,the reform mainly improves the competitive effect of cash holdings by increasing investment in technology-based intangible assets,but for service companies and R&D manufacturing companies,the reform enhances the competition effect of cash holding by both increasing the investment in technology-based intangible assets and R&D investment.The research is helpful for analyzing the impact of "replacing business tax with value-added tax reform" on corporate cash policy and for understanding the relationship between corporate investment policy and cash policy in the context of the reform.The results prove that the reform can promote adjusting corporate cash holding policy and bring into strategic effects by reducing the tendency of cash savings characterized by cash-cash flow sensitivity,supporting physical investment and improving the capital utilization of the enterprise,thereby enhancing the competitiveness of the enterprise and achieving the competition effect.In addition,enterprises should pay attention to the promotion of tax shifting ability and deduction ability,in order to promote the strategic effect of holding cash after the reform to maximize the policy bonus.