| ID | 170091 |
| Title Proper | Effect of value-added tax on leverage |
| Other Title Information | evidence from China’s value-added tax reform |
| Language | ENG |
| Author | Zou, Jingxian |
| Summary / Abstract (Note) | In this paper, we use China’s value-added tax (VAT) reform in 2007, which was aimed to encourage fixed investment purchasing, as a natural experiment to explore the effect on firm financial leverage. Results show an expansion in firm balance sheet after the reform, manifested by greater liabilities (long-term, short-term and total liability) and asset. Moreover, in terms of the ratio to asset, it’s found that long-term liability rose while the short-term liability dropped, and as a net effect, the total asset-liability ratio declined as the latter effect dominated. To theoretically explain the observed patterns, three mechanisms are highlighted, “income effect”, “maturity-match effect” and “market disciplining effect”, where income effect corresponds to a proportional expansion of balance sheet while the latter two effects alter the composition of firm leverage. |
| `In' analytical Note | China Economic Review , No.54; Apr 2019: p.135-146 |
| Journal Source | China Economic Review 2019-04 |
| Key Words | Tax Reform ; Capital Structure ; Value-Added ; Debt Maturity ; M-M Theory |