Research On The Impact Of Tax Shield Effect On Corporate Capital Structure

Law of the PRC on Enterprise Income Tax stipulates that interest on borrowings that meet the standard is included in financial expenses and can be deducted before tax.According to the theory of balance,this provision makes debt deductible,that is,debt tax shield.Expenses other than interest on debt,such as depreciation and amortization,can also be deducted before taxes,thereby bringing about a non-debt tax shield.The choice of capital structure will take into account the role of tax shields.However,the use of tax shields may erode the corporate income tax base.This paper uses a random effects model and takes 224 listed companies in China from 2002 to2017 as a sample to empirically study the relationship between the corporate income tax shield effect and corporate capital structure in our country.It is found that the debt tax shield is significantly positively related to the corporate capital structure.The non-debt tax shield is significantly negatively related to the corporate capital structure;at the same time,the impact of the debt tax shield and the non-debt tax shield on the corporate capital structure varies from industry to industry;the tax shield effect is also different for different time periods.In addition,reform measures and incentive policies concerning corporate income tax in foreign countries are also introduced.According to the conclusion of the study,on the premise of not eroding the corporate income tax base,it is necessary to reasonably control the restrictions on pre-tax deduction of interest expenditure,improve the depreciation and amortization policy,standardize tax preferences and strengthen and improve the tax system.