"The Replacement Of Business Tax By Value-added Tax" And Investment-cash Flow Sensitivity

On January 1,2012,the State Council took Shanghai as a pilot project to implement the policy of "the Replacement of Business Tax by Value-Added Tax"(RBVT policy).The policy,Replacement of Business Tax by Value-Added Tax,aims to solve the problems of duplicate taxation and hindering industrial development.Meanwhile,the RBVT policy is also the key to achieving structural tax cuts and stimulating market vitality.In this article,we take the RBVT policy as the natural experimental background,using date of Shanghai and Shenzhen a-share listed company public data from 2011 to 2016 as research samples,and using Fixed Effect and Difference-In-Difference model to examine the impact of the RBVT policy on investment-cash flow sensitivity.The result turns out,compared with the implementation of the RBVT policy,reform companies have less sensitivity to investment-cash flow than unreformed companies,which means investment is more efficient.Further,On the basis of the DID model,this article uses financial flexibility to explore the impact of the RBVT policy on investment-cash flow sensitivity,and uses the degree of the product market competition and the property rights as a grouping condition to do further study.The result turns out,compared with companies without financial flexibility,companies with financial flexibility are more sensitive to cash flow after implementing the RBVT policy.It shows agency costs increase effect.The companies which is in the intense product competition market,have negative effect of the RBVT policy on investment-cash flow sensitivity.At the same time,The non-state-owned companies also have negative effect of the RBVT policy on investment-cash flow sensitivity.It shows financing constraints mitigate effect.Finally,This article finds that the RBVT policy can enhance companies value by reducing the sensitivity of investment-cash flow.It is also confirms that the RBVT policy is important to structural tax cuts,stimulates the companies investment efficiency and promotes the positive development of the market.