The Research On The Impact Of VAT Transformation On The Performance Of Listed Companies And Its Market Reaction

A value added tax (VAT) is a form of consumption tax which taxes only the value added in production and circulation process of the commodity. According to the difference of the treatment of the Purchased fixed assets, value added tax can be divided into production-based VAT, income-producing VAT and consumption-based VAT. Production-based VAT does not allow taxpayers to deduct the value-added tax of purchased fixed assets, while Consumption-based VAT allows taxpayers to deduct the value-added tax of the purchased fixed assets in that period all at once.VAT tax revenues accounted for most of China's tax revenue. In 1994 China conducted a taxation reform. Considering over-investment, inflation, slow growth of central government revenue, the production-based VAT was chosen. In the following more than 10 years, Production-based VAT played a significant role in reducing over-investment, curbing inflation and increasing government revenue. However, with China's rapid economic development and further improve of market economic system, financial situation gradually improved, highlighting the shortcomings of the production-based VAT, are no longer meet the demands of economic development.In September 2004, the State Council required the implementation of VAT reform in Northeast China, allowing companies in some sectors offset contained in the device class of fixed assets input tax. Compared with production-based VAT, consumption-based VAT has many advantages, such as stimulating investment, reducing the burden of enterprises. In addition, most countries in the world using consumption-based VAT.This paper analyzes the impact of VAT transformation reform of listed companies'performance and its market reaction. In theory, the transformation of VAT directly affects the company's recorded value of fixed assets and depreciation. And it can increase corporate profits, net profits, and cash flow. Meanwhile, according to the theories like the efficient market hypothesis, the VAT reform will meet a favorable response in capital markets.In order to test the impact of VAT, this paper put forward two hypotheses:first, value-added tax will increase corporate performance; second, value-added tax will increase the stock returns. Meanwhile, the paper selects 2001-2003 and 2005-2008 financial data of 56 listed companies in Northeast China as the sample data, through the establishment of models, multiple linear regressions to test the value-added tax and profits, cash flow, annual stock return rate. The empirical results show that the value-added tax has a positive role in the enterprise, improve the business performance and increase the annual stock returns.The transformation of VAT has both positive effects and limitations, for example, The Transformation is not thorough enough. Finally, the paper proposed further tax reform proposals and future research prospects.