A Study On The Reform Of Income Tax System, Tax Shield Values And Financing Decisions Of Listed Companies

The Income Tax Law, promulgated by the nation in a legal form, will remain stable for a very long time. It contributes the difficulty in searching relative data, which is used in the research of the influence of tax rate variation on a company capital structure. The Law of Enterprise Income Tax, adopted by the 10th NPC, sets that the official executed tax rate will fall from 33% to 25% since 2008. This is a rare chance to study the public companies'tax bearing variation and its influence on financing structure. Up to this day, an explicit summing-up is still not concluded, which is concerned with the theoretical research of the impact of income tax on corporate finance decision. Though the empirical research has gained abundant results, there are widely divergent views about the conclusions, which are even poled apart. Meanwhile, much difference also lies in the former research associated with the measurement chosen for tax burden. In addition, the domestic study on the calculation of the value of debt tax shield is basically still in the blank state. All these topics are worth studying in fact. Base on the above research and the tax system reformation before and after the unification of the two taxes, the paper aims to study the influence of tax bearing variation of Corporate Income Tax on its finance decision and company values.Based on the Income tax system revolution in China, the research is conducted from three aspects: the measurement of corporate income tax bearing, the empirical analysis on tax shield effect as well as the relationship between revenue and capital structure. Literature review is firstly displayed, including domestic study and study abroad. Then, the analysis will be put on the relative theories on income tax, corporate finance decision, measurement of tax bearing, etc. Major tasks and findings of the research are concluded in the following five aspects.First of all, the connotation and classification of tax bearing equity theory are summed up. Applying elastic theory of tax revenue, the writer analyzes the performance of income tax revolution in achieving the equity of tax bearing. This research academically analyzes the influence of income tax on financing decisions, respectively from the perspectives of capital cost and cash flow. Considering other influence factors on financing decisions, the conducting process is summarized: the change of revenue bearing resulted from income tax revolution→the change of vested interest of stakeholders→the change of interest appeal→the influence of company values→financing structure of a company→the introduction of new corporate governance structure→the adjustment of financing structure decision.Second of all, the measurement is conducted in income tax burden of public companies in China, before and after the tax revolution. It is found that influenced by the latest Law of Income Tax the burden is generally decreased by 10.24% (from 22.02% to 11.78%). Both of the official executed tax rate and the Effective Tax Rate (ETR) decline, respectively from 29.81% to 15.82% and 15.98% to 10.64%, with the balance of 13.983% and 5.34%. The ETR rises by 4.69% in public companies whose official executed tax rate rises, from 11.59% to 16.28%. The divergence of income tax bearing is reduced among different regions and industries, embodying the principle of fairness. Therefore, the goal of the tax system revolution is achieved.Thirdly, Marginal Tax Rate (MTR) of Chinese public companies (from 2005 to 2009) is calculated by using the random wandering model. Through the comparative analysis among different enterprises in qualities, scales and industries, the writer find that the MTR of state-owned companies is higher than that of non-state-owned ones during five consecutive years. Companies'scale has little impact on MTR. Apart from the industries of IT and real estate whose MTR are seeing an upward trend, all the others'MTR decline as a tendency.Fourthly, started from the formula of V_L = V_U +γD and V_U = E ( FOI )/ρ, two approaches based on tax shield effect are promoted through logical reasoning. They are"total value analysis"and"cash flow analysis". The regression model, which is used to calculate debt tax shield value, is established. The empirical inspection of tax shield profits is carried out to investigate the decrease of influence on company values after the combination of the two taxes.Finally, the relationship between ETR, debt tax shield, non-debt tax shield as well as other control variable and debt finance is verified by quantile regression. The main results are as follows: on different quantile levels, the degree of influence of ETR and capital structures is different. When the debt scale is small, there is a positive correlation between ETR and its influence on capital structure. With the increase of quantile level, the significance decrease; there is a positive correlation between debt tax shield, growth and company capital structure. A remarkable negative correlation lies in the non-debt tax shield, quality of the enterprise and capital structure. On the quantile level of 0.3, 0.5 and 0.7, earning power and capital structure show negative correlations; there is also a marked positive correlation between the scale and capital structure of a company on the level of 0.1. Besides, such positive influence is increase with the rise of capital structure level. All of these conclusions provide experience and evidence for the applicability of classic capital structure theory in China.There are 12 figures, 53 tables and 125 references in the dissertation.