Research Of The Effect Of Corporate Income Tax Reform On The Level Of Debt Financing

The relationship between Tax and the level of debt financing has been one of the key areas of academic research.In order to make supplement of capital structure theory,scholars made future research by modifying or relaxing hypothetical conditions since MM theory is presented in1958. Among them, the first to be modified is the assumption of tax. However,different scholars come to different or even opposite conclusions of the related studies about the relationship between taxation and the level of debt financing.The reason probably is the selection of indicators to measure the actual tax burden as well as the differences in national circumstances.Based on the background of the reform of corporate income tax,this paper first make selection and evaluation of different metrics of actual tax burden,looking for a suitable and reasonable proxy variable,thus to provide basic research for other relevant studies.Also, the previous literatures study the relationship between the corporate tax and the level of debt financing that is mainly based on their own characteristics,few domestic scholars combine the demand and supply of debt finance to study the effects of the reform of corporate income tax on the level of debt financing.In this paper,combined with the perspective of demand and supply of debt,the research of the double impact of macroeconomic policy and microscopic business characteristics on the level of debt financing is made.It makes attempts to explore the effects of the corporate income tax reform on corporate debt financing levels under the circumstance of financing constraints.The results showed that:Firstly,the effective tax rate is useful when making decisions about corporate debt financing level;Secondly, corporate tax is positively correlated with the level of debt financing.The enterprises,whose corporate income tax rate increased due to corporate income tax reform,raised their level of debt financing.And the opposite corporates reduced their level of debt financing.The research findings support the classical theory of capital structure; Third, The heterogeneity of the effects of tax reform on corporate debt financing level exist when confronted with different level of financing constraints.Lighter financing constraints enterprises’ level of debt financing is more vulnerable to the changes in tax rates;However,when comes to the enterprises with heavier financing constraints,the sensitivity is reduced.The results of this study will not only help to deepen our understanding of the effectiveness of macroeconomic policies,thus to make further improvement of our tax system,but also help micro-enterprise managers make scientific decision of debt financing.