Financial Constrains And Cash Tax Savings

With the rapid development of market economy,the tax has been deep into all aspects of social and economic life and enterprises have attached more importance to the absolute return,so as that tax planning as a kind of financial management activities,plays an important role in the enterprise income.Tax planning means that in order to reduce the tax burden and maximize the value of enterprises,the enterprise reasonably plan and arrange its investment activities,financing activities,dividend distribution and other activities in advance without violating the tax laws and regulations.Financing constraints mean the rise of external financing costs or the restriction of external financing channels.In the financing constraints of enterprises,will the enterprise use tax planning to reduce the taxable income,thus reducing taxes to increase internal cash flow?This paper will measure the financial constraints of the company from two aspects:financial distress and investment constraints and from these two aspects to analyze the relationship between financial constraints and cash savings from tax planning.This paper expands sample period by investigating the Shanghai and Shenzhen A-share listed companies during 2003-2015,and conducts further investigation from multiple aspects.Specifically,this paper studies whether profitability,cash holdings and enterprise nature will influence the correlation between the financing constraints and tax planning policy.Empirical results are as follows:1)when the financial constraints faced by enterprises increase,enterprises will increase the cash tax planning,thereby reducing taxable income and increasing the cash generated internally.2)Compared to loss firms,profitable companies will use more tax planning to reduce the actual tax payment,thereby reducing the effective cash tax rate.3)When the company's cash holdings are more,in the face of increased financial constraints,companies will not be more use of tax planning policies.For enterprises with less cash holdings,financial constraints have the greatest impact on the tax planning activities.4)When the financing constraints faced by enterprises increase,private enterprises will be more use of tax planning policies to reduce taxable income,but state-owned enterprises will not be more use of tax planning policies.5)Both high market index enterprises and low market index enterprises are affected by financial constraints.when the financial constraints faced by both high market index enterprises and low market index enterprises increase,they will increase the cash tax planning,thereby reducing taxable income and increasing the cash generated internally.However,it can be found that the low market index faced a higher financial constraint than the high market index.This paper studies the influence of financing constraints through taxation,well explains the influence of financing constraints and the motivation of tax planning.and it is also found that the correlations of financial constraints to tax planning between the private enterprises and state-owned enterprises are different,providing a new discovery for the domestic study on the tax savings relevance of financial constraints.