A Research On The Impact Of Corporate Income Tax Upon Debt Financing Level Of Chinese Listed Companies

Capital structure is very important for the enterprises’ management anddevelopment, and the modern capital structure theory points out that the debt is theimportant factor that affects enterprises’ financing and the capital market structure. Thefactor which affects the debt policy is various, but the tax is the important one withoutdoubt. It is mainly because the interest of debt financing can be deducted from thetaxable income before taxing and can take the tax-deducted advantage to improveenterprises’ value. From ancient times to the present, tax not only is the main form ofgovernment revenue and existing commonly, but also is one of important economicleverage and methods for government to regulate capital market. As long as thegovernment exists, tax is inevitable. So the research of the relationship between the taxand debt financing has always been the focus of the academic circle all the time.However, due to the difference in the capital market, tax system and other economicenvironment, the related research at home and abroad has not draw the same conclusion.In2008, the reform of the corporate income tax law makes the domestic andforeign-funded enterprises’ income tax rate get unified, at the same time the effectivetax rate of listed companies in China has been changed. With the particularity of ourcountry system background, the economic effect on debt financing from tax may not bethe same as other countries. Therefore, it is great practical significant to research therelationship between corporate income tax and debt financing under our country’sspecial tax system and system background for regulating the financing behavior,optimizing capital structure, promoting the intrinsic value of enterprise, and promotingthe sound development of the capital market of our country.In order to prove the applicability of debt tax shield and the financing structuretheory in china, taking the corporate income tax law reform as background, using themethod of normative analysis combined with empirical research, this paper discussedthe relationship between corporate income rate and debt financing level from373listedcompanies in Shanghai stock market. After a linear regression between effective tax rateand debt financing level of1865samples, we found that the firms’ effective tax rate washigher, which debt financing utilization rate was also higher, and the motivation toreceive tax shield interest was relatively stronger. At the same time, the researchconclusion also proved that the non-debt tax shields will be relatively lower enterprise debt financing level. It was called "substitution effect" to debt tax shield. Since thestate-owned enterprise had serious owner lack and corporate governance issues, its debtfinancing level was significantly lower than non state owned enterprise. Further studyshowed that, the corporate income tax’s incentive effect on debt financing was onlyembodied in short-term debt but not in long-term debt. And it was also not significant infinancial constraint enterprise due to the influence of financial difficulties.Based on economics, management, accounting, statistics, finance and othertheories, this paper was studied from macroscopic tax situation and microcosmiccompany point of view, and it was divided into five parts. Firstly, it elaborated theresearch background and significance, research methods, research ideas and structurearrangement. Secondly, it reviewed the research on impact on corporate capital structureand debt financing decision from corporate income tax both in the domestic and foreignhas been made. By analyzing the deficiency and limitation of domestic research papers,the key problems this paper intended to solve were revealed. Thirdly, it discussed therelationship between enterprises’ financing way and capital structure, analyzed theinfluence upon debt financing from corporate income tax in theory, and elaborated thepolicy basis according to China’s existing corporate income tax law. Fourthly, the paperanalyzed the impact on overall debt financing level of Chinese listed companies fromeffective tax rate from the perspective of empirical research, and by a furthercomparative analysis, we found there were variations between long-term debt andshort-term debt, high financial constraints and low financial constraint. Finally, thispaper summarized the empirical research’s conclusion, and then combined with ourcountry’s feasibility, it put forward some policy suggestions on how to optimizeChinese listed companies’ debt financing decision and improving Chinese tax system.