The Analysis Of The Tax Effect Of The Capital Structure In Financial Sector

The capital structure issue has been the important issue of corporate finance for a long time. Empirical study shows that income tax is one of the important factors that affect corporate capital structure. Many scholars in foreign countries devoted themselves to the issue on how to taxation affects the capital structure decisions. However, litter research on this problem has been done in China so far. It is known that there exist many differences in taxation between China and other countries mentioned in the previous study, therefore, my paper try to perform a theoretical study about the how taxation in China affects the capital structure.Based on the MM theorem, this paper takes the tax effect of capital structure decision as the master clew and extends the hypothesis that there is no tax at all step by step. The paper integrates the tax system in China with the financial data in the annals of financial listed corporations to investigate the tax effect of capital structure. According to the above analyses, the paper gives some corresponding suggestions about how to benefit from the tax effect of capital structure more sufficiently.We chose the financial sector listed corporation to do this research. Because financial sectors all have high leverage. It has huge business risk and big external affection which makes it must be strictly controlled by the regulatory government.. So, it is useful to study the capital structure of financial sector.We conclude that, as for the impact of tax, the enterprise could increase its company's value by increasing debt if there is income tax effect of debt financing, with the precondition that it hasn't exceeded the ceiling value of debt. Our empirical analysis of financial listed corporations show that there exist both debt capacity and tax advantage of debt financing for the majority of those companies, thus we suggest that they take full advantage of the income tax effect of debt financing and maximize the value of the corporate by increasing the leverage.