The Influence Of Income Tax Reform To Capital Structure And Market Reaction

The Income Tax Reform is an important aspect in China's current tax reform policy, and its influence to capital structure of listed companies and the market reaction is an issue that deserves research. Based on March 16, 2007 passed the tax reform act, we research the influence to the capital structure of listed companies and the company's stock market reaction. Through the 835 listed companies capital structure study,we found that, compared with the tax rate unchanged & reduced companies, tax reform leading to corporate income tax increased companies will improve financial leverage, which provides basis for the capital structure theory in China's suitability in reality. In addition, the reason of financial leverage improving is primarily through debt increased rather than owners' equity reduced, which is consistent to this research conclusion of Wu LianSheng (2006) to our country "first levied then returned" income tax preferential policies to lift its capital of the structural changes. Meanwhile, the regression model results show that company growth (GROWTH), scale (SIZE) are significantly positive with the capital structure change, and the company performance (ROA), depreciation changes (DDEP) are significantly negative with the capital structure change. While tobin Q (TQ) and exchange state (Exchange) variables have no significant correlation with the capital structure changes. Through the 769 company's share prices in the market's reaction study, we found that, compared with the tax rate unchanged & increased companies, the tax rate reduced companies will perform a positive response in market. However, compared to the constant tax rate companies, the improving companies'market performances isn't a significantly adverse effect.