Does corporate tax planning mitigate financial constraints? Evidence from China
We hypothesize that tax planning behaviour mitigates a firm's financial constraints, and this effect is more pronounced in non-state-owned enterprises and big firms compared to their counterparts. We use data for Chinese listed firms during the period 2010–2018 to test the hypotheses, based on...
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John Wiley and Sons Ltd
2021
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| Online Access: | https://onlinelibrary-wiley-com.access.library.msu.ac.zw/doi/epdf/10.1002/ijfe.2433 http://hdl.handle.net/11408/4118 |
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| author | Sun, Jie Makosa, Lewis Yang, Jinkun Yin, Fangyuan Sitsha, Lovemore |
| author_facet | Sun, Jie Makosa, Lewis Yang, Jinkun Yin, Fangyuan Sitsha, Lovemore |
| author_sort | Sun, Jie |
| collection | DSpace |
| description | We hypothesize that tax planning behaviour mitigates a firm's financial constraints, and this effect is more pronounced in non-state-owned enterprises and big firms compared to their counterparts. We use data for Chinese listed firms during the period 2010–2018 to test the hypotheses, based on both ordinary least squares and fixed-effect models. The regression results show that tax planning is positively and significantly associated with mitigation of financial constraints,suggesting that cash tax savings are likely to improve firms' financial slack. This effect is stronger for non-state-owned enterprises, big firms, non-political firms and firms in the eastern region of China. Further analyses reveal that, in the long run, tax planning increases firms' financial constraints, supporting Scholes-Wolfson's point of view of tax planning, that minimizing taxes is not the same as effective tax planning. These results are robust to various tests. Overall, our results suggest that minimizing tax generally produces immediate cash flow benefits and mitigates financial constraints in the short run; however, in the long run, firms should adopt sustainable financing strategies. |
| format | Article |
| id | ir-11408-4118 |
| institution | My University |
| language | English |
| publishDate | 2021 |
| publisher | John Wiley and Sons Ltd |
| record_format | dspace |
| spelling | ir-11408-41182022-06-27T13:49:06Z Does corporate tax planning mitigate financial constraints? Evidence from China Sun, Jie Makosa, Lewis Yang, Jinkun Yin, Fangyuan Sitsha, Lovemore financial constraints firm size state-owned enterprises tax planning We hypothesize that tax planning behaviour mitigates a firm's financial constraints, and this effect is more pronounced in non-state-owned enterprises and big firms compared to their counterparts. We use data for Chinese listed firms during the period 2010–2018 to test the hypotheses, based on both ordinary least squares and fixed-effect models. The regression results show that tax planning is positively and significantly associated with mitigation of financial constraints,suggesting that cash tax savings are likely to improve firms' financial slack. This effect is stronger for non-state-owned enterprises, big firms, non-political firms and firms in the eastern region of China. Further analyses reveal that, in the long run, tax planning increases firms' financial constraints, supporting Scholes-Wolfson's point of view of tax planning, that minimizing taxes is not the same as effective tax planning. These results are robust to various tests. Overall, our results suggest that minimizing tax generally produces immediate cash flow benefits and mitigates financial constraints in the short run; however, in the long run, firms should adopt sustainable financing strategies. 2021-05-06T12:15:50Z 2021-05-06T12:15:50Z 2020-12-20 Article 10769307 https://onlinelibrary-wiley-com.access.library.msu.ac.zw/doi/epdf/10.1002/ijfe.2433 http://hdl.handle.net/11408/4118 en International Journal of Finance Economics Volume 26, Issue 2; open John Wiley and Sons Ltd |
| spellingShingle | financial constraints firm size state-owned enterprises tax planning Sun, Jie Makosa, Lewis Yang, Jinkun Yin, Fangyuan Sitsha, Lovemore Does corporate tax planning mitigate financial constraints? Evidence from China |
| title | Does corporate tax planning mitigate financial constraints? Evidence from China |
| title_full | Does corporate tax planning mitigate financial constraints? Evidence from China |
| title_fullStr | Does corporate tax planning mitigate financial constraints? Evidence from China |
| title_full_unstemmed | Does corporate tax planning mitigate financial constraints? Evidence from China |
| title_short | Does corporate tax planning mitigate financial constraints? Evidence from China |
| title_sort | does corporate tax planning mitigate financial constraints? evidence from china |
| topic | financial constraints firm size state-owned enterprises tax planning |
| url | https://onlinelibrary-wiley-com.access.library.msu.ac.zw/doi/epdf/10.1002/ijfe.2433 http://hdl.handle.net/11408/4118 |
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