Whether Tax And Fee Cut Policies Promote Enterprises Investment From Fictitious To Substantial

With the rapid development of China’s economy,the financial market has become increasingly mature and financial intermediaries and products are booming.At the same time,the problem of financialization of enterprises has become increasingly serious,the Chinese economy has a clear tendency of "transforming from substantial to fictitious".At the macroeconomic level,the undesirable tendency is manifested by the continuous flow of capital from the industrial sector into the financial sector,resulting in the rapid expansion of informal financial intermediaries,inflated asset prices.The excessive activity of the financial sector encroaches on the substantial economy,leading to the reduction of investment and investment efficiency in the industrial sector.While at the microeconomic level,the undesirable tendency is manifested by the phenomenon of non-financial enterprises continually increasing their holdings of financial asset,which in turn "crowd out" investment in industry and R&D,and finally the corporate earnings are separated from the main business.The weakened external demand because of the downward pressure of the world economy,the weakened domestic demand due to the gradual disappearance of the system benefits and demographic benefits of China,and the continuous rise in the cost of raw materials,labor and other factors of production caused the shrinking of profit margin of industrial investment.At the same time,the financial sector,relying on its monopoly advantage and price advantage,has always maintained a high profit rate.Due to the factors above,the profit rate of the financial sector far exceeding the profit rate of the industrial sector,and the yield spread is gradually widening.The huge yield spread is the reason why non-financial enterprises withdraw their capital from main fields and engage in financial sector to arbitrage.The tendency of "transforming from substantial to fictitious" has brought multiple negative impacts on the China’s economy.On the one hand,enterprises put a large amount of capital into the financial sector for arbitrage,which gives rise to financial problems such as insider trading and capital mismatch.The excessive use of financial leverage caused by over financialization of enterprises can easily accumulate financial system risks,increase the risk of stock price collapse,and become an obstacle to the healthy development of the economy.On the other hand,the long-term retention of capital in the financial sector for arbitrage has led to the over-inflation of the virtual economy and crowded out the industrial capital originally used for upgrading fixed assets and R&D investment,which is not conducive to enterprises’ core competitiveness and undermines their long-term stable development.China’s economy is in a critical period of transforming the development mode and optimizing the economic structure,the country needs to adopt corresponding macrocontrol policies to correct the market operation errors,help Chinese enterprises to overcome the dilemma of insufficient external demand and high internal cost,stimulate demand,reduce the cost of enterprises,narrow the yield spread between industrial sector and financial sector,guide enterprises to invest in industry sector,give full play to the service function of financial sector and help the healthy development of substantial economy.Tax policy has always been effective tool to realize economic regulation in China.In recent years,the state has implemented a series of tax and fee cuts policies to reduce the burden of enterprises,stimulate their vitality and cope with the negative impact of economic downward pressure.As the main tax reform strategy in China in recent years,can tax and fee cuts policies guide enterprises to optimize the investment structure while reducing the tax burden of enterprises?Can the policy restrain the abnormal flow of capital from industrial sector into the financial sector?Can it promote Chinese enterprises investment from fictitious to substantial?What is the mechanism of tax and fee cut policies on the investment behavior of enterprise?Are there differences in policy effects due to the heterogeneity of firm characteristics and the external environment?Based on different tax and fee perspectives,this paper empirically examines whether the tax and fee cut policies have promote enterprises investment from fictitious to substantial by taking non-financial listed companies in Shanghai and Shenzhen Ashares in China as the research objects.Specifically,this paper adopts a difference-indifference(DID)approach to test and evaluate the policy effects of different tax and fee incentives on firms’ investment behavior by using the "the replacement of business tax with value-added tax(VAT)" policy,VAT rate simplification and reduction policy,accelerated depreciation policy,accrual deduction of R&D expense policy and social insurance premium reduction policy as the pseudo-natural experiments.This paper also investigates the mechanism of above policy effects from the perspective of financial investment motivation.In addition,this paper examines whether the policy effects guide enterprises’ investment to return to the substantial economy,as well as the differential impact of policy effects on firms’ holdings of financial assets with different maturity structures.In further research,this paper exams differences in policy effects due to the heterogeneity of firm characteristics and the external environment.Through the analysis above,this paper draws the following conclusions:First,the VAT cut policies significantly inhibited corporate financial investment.Both "the replacement of business tax with VAT" policy and the VAT rate simplification and reduction policy inhibit firms’ investment in financial assets by weakening the arbitrage motive of holding financial assets,but have no significant effect on the"pooling" motivation.In line with the results of the intermediation mechanism,the VAT cut policies only have a significant discouraging effect on long-term financial investment,but has no significant effect on short-term financial investment.Besides,this paper also finds that the inhibiting policy effects helps to guide the investment back to the industrial sector.This paper further finds that the policy effects of VAT cut policies are affected by the heterogeneity of firms and the external market,especially,the discouraging effect is more pronounced in non-state enterprises,firms with weaker tax shifting ability,regions with lower tax administration intensity and regions with relatively fierce competition in the financial industry.Second,the corporate income tax(CIT)cut policies significantly inhibit corporate financial investment.CIT is the second largest source of tax revenue in China after VAT,and collection strength of the tax has a direct impact on corporate behavior.Both the accelerated depreciation policy for fixed assets and the additional deduction policy for R&D expenses significantly discourage corporate financialization,but there are differences in the mechanisms of the policy effects,specifically,the accelerated depreciation policy inhibits firms’ investment in financial assets by weakening the arbitrage motive as well as precautionary savings motive of holding financial assets,while the additional deduction policy discourages firm’s financial investment only through weakening their motive of precautionary savings.In addition,the CIT cut policies also have a testimonial effect of guiding firms’ investment back to the substantial economy.In further study,this paper finds that the maturity structures of the financial holdings,heterogeneous characteristics of firms and the external environment have moderating effects on the policy effects.From the perspective of the maturity structures of the financial holdings,the additional deduction policy significantly reduces enterprises’ short-term financial holdings and has no significant effect on long-term financial holdings.From the perspective of enterprise heterogeneity,the inhibiting policy effects are more pronounced for non-state enterprises and enterprises with relatively poor main performance.From the perspective of external environment,the disincentive effect of accelerated depreciation policy on long-term financial holdings is more significant among firms in regions with low tax collection intensity and in regions with more intense financial competition;the disincentive effect on short-term financial holdings is more significant among firms in regions with high tax collection intensive and in regions with less intense financial competition.The disincentive effect of the additional deduction policy on financial investment is more pronounced among firms in regions with high tax collection intensity and regions with less intense financial competition.Finally,the social security contribution cut policies significantly inhibit firms’financial investment.The cuts of social security contributions of enterprises not only affect the investment choice of enterprises from the micro-level such as reducing the labor cost and improving the performance,but also from the macro-level such as increasing the disposable income of employees,promoting consumption and stabilizing employment.The cutting policies reduce firms’ precautionary saving incentives to hold financial assets by alleviating their liquidity constraints,which ultimately discourages firms from investing in financial assets,however,the policy does not significantly affect firms’ arbitrage incentives.Further study shows that inhibited policy effects effectively induced firms to invest in industrial sectors.The policies significantly suppress shortterm financial investment,but has no significant impact on long-term financial investment.The above disincentive effect is more pronounced in enterprises with higher social security pressure,state-owned enterprises,enterprises facing more severe financing constraints,enterprises in regions with higher tax regulation intensity and enterprises in regions with relatively less intense financial competition.In sum,this paper examines the policy effects of tax and fee cut policies on optimizing the investment structure of firms in perspective of different tax and fee types.The research conclusions have certain innovative contributions and policy enlightenment.The innovative contributions are:firstly,this paper provides a new perspective on the research field of governance of corporate investment;secondly,it constructs a research framework on the effects of tax incentives based on the perspective of corporate financial investment decisions;thirdly,it proposes a transmission mechanism of tax reduction policies affecting corporate financial investment based on the perspective of financial investment motives.The policy implications of the findings are:first,the government should continue to deepen tax and fee cut policies to guide enterprises to optimize investment structure;second,the relevant departments should deepen VAT cut policies and accelerated depreciation tax incentives to precisely curb arbitrage motivate to invest in financial sector and correct Chinese enterprises’transforming from substantial to fictitious;third,to grasp the differences in enterprises’heterogeneous characteristics and the external market’s heterogeneous characteristics in order to improve the efficiency of policy execution and to strive to achieve all-round coverage of policy effects.