Tax And Correlation Analysis Of Financing Structure

In modern society, taxation is the main way of government revenue, and the taxes is the most direct and important element affecting the corporate financial decisions. However, China acts the opposite. Most of the listed-companies haven’t taken the taxes as an important and realistic element when they make financial decisions, and so far, little research on the tax effects of corporate financial decisions has been done. How much is the tax effect? Have the corporations in China realized the debt tax shield and started to use it to increase the firm value? How much does the debt tax shield that still remain? What effect has been given to the company’s financing structure after the implementation of the new Enterprise Income Tax Law of2008?In order to answer the above questions, we take the China Corporation Income Tax System as the research background, accurating the margin tax rates according to the decrete tax rules, to formulate the margin returns curve of debt tax shield. And then, we balance this curve and each effect of debt costs, so as to make empirical evidences of the corporate debt policies, the correlation of the margin tax rates and the debt rates, and the value of debt tax shield in China.The basic principles of selecting sample corporate are as follows:the securities of the manufacturing listed-company had been continually exchangeable in Shenzhen or Shanghai exchange in1995-2010; not companies in finance industry; not the corporate issuing securities abroad. And then, we select50listed-companies as the sample corporates according to the probability distribution of the industry and the legal tax rates, and make2006-2010as the examine period. We take the debt rates as explained variable, the margin tax rates as explaining variable, and the Z-score, PPE/(total asset), Ln(total asset), current ratio, quick ratio as the controlling variables, and establish an regression equation basing on the above variables. We make the conclusions as follows:there is a remarkably positive correlation between the margin tax rates and the debt rates; most of the listed-companies in China have realized to use the debt tax shields, represented by the decreasing kink of tax shield, and the increasing value of tax shield. And the degree of the company’s conservatism has been significantly related to financial distress costs, liquidity and profitability.The above empirical evidences prove that the tax lias become an important balancing element in the corporate debt policies in China. However, the debt can also bring the bankrupt risks, so each company should make its best debt polices according to its scale, profit-making capability, liquidity of capital and so on.