Effect Of Tax Avoidance For Corporate Debt Financing

Tax avoidance is an important topic of the current domestic and international research. But the initial studies about tax avoidance mainly focused on evasion by individuals, not businesses. For closely-held small businesses whose owners are also managers, the businesses is as same as individual taxpayers in the moment. Then scholars began to study the corporate tax learning from the theories of personal tax. A lot of scholars agree that the direct economic consequence of tax avoidance is to deduct the cost from the total profit which can’t be deducted in other cases. So it can increase cash flow, shareholder wealth, and corporate value. However the latest theory studying from principal agent theory that tax avoidance makes the business activities more complex and the disclosure information more difficult to understand and deliver. What’s more, mangers may hungry for profit by complex activities. These factors make it difficult to understand the economic substance of companies for investors and results in hidden cost. Therefore, the tax avoidance does not necessarily increase value. Which kind of economic consequences the tax avoidance bring to the companies really? Could it affect the companies’ investment and financing decisions? Current research in this field in our country is quite scarce. It is an area worthy of further exploration. Therefore the author studies current research deeply and makes debt financing as a starting point to research the economic consequences of corporate tax avoidance. Then the outside investors can understand the substance of tax avoidance in depth.In this article, we are interested in the effect of a broad spectrum of aggressive tax avoidance practices. We refer to all of these risk-engendering tax planning practices as aggressive tax avoidance. It includes not only the most extreme behaviors which could be deemed inappropriate by the National Audit Office, but also the tax planning using of tax loopholes. Then this text gives theoretical and empirical support. Specifically:Firstly, review the related literature about tax avoidance and corporate debt financing, providing a reference for later in this article; Secondly, introduce the theory of effective tax theory, asymmetric information theory and principal-agent theory. Then try to explain the relationship between the tax avoidance and corporate debt financing with theory, providing a theoretical basis for the assumptions below; Finally select our 2009--2014 A-share listed companies in Shanghai and Shenzhen as samples to establish regression models to verify the impact of tax avoidance on corporate debt financing.This study mainly the following conclusions:First, the aggressive corporate tax avoidance has a negative correlation with the total loans and the negative impact is mainly reflected in the long-term loans, but has no effect on short-term loans, which shows avoidance behavior is not conducive to business to obtain bank loans, especially long-term loans; second, aggressive tax avoidance and corporate debt financing costs is positively correlated, indicating that the avoidance behavior makes companies to pay higher cost to get a bank loan. According to the conclusions, this paper gives constructive comments and suggestions for businesses, governments and investors.