An Analysis Of The Tax Shield And Financial Leverage Effect Of The Listed Companies’ Debt Financing

With countries around the world are facing increasingly fierce competition in the domestic and international markets, companies have to continuously improve their adaptability and competitiveness. It is inevitable to face financing problems in order to develop. General corporate has two ways of financing which are equity financing and debt financing. Debt financing as a major source of corporate financing, it plays an irreplaceable role of improving their competitiveness and thus enhancing their value. Therefore, debt financing become an important study area for researchers.The interest on the debt has two basic characteristics:First, tax deductible, which produce tax shield effect; Second, the amount fixed, which produce financial leverage. Corporate tax shield effect is a fundamental effect and the financial leverage effect is the extension of the debt financing. Therefore, tax shield effect and the financial leverage effect are organic whole. So we combine the tax shield effect and the effect of financial leverage for analysis.First, this paper describes the listed companies’debt financing tax shield and financial leverage effect according to their assets-liability ratio and long-term debt. Consideration the impact of financial crisis, we select sample companies which listed in Shenzhen and Shanghai before2008, and eliminate the financial and insurance industry. Through descriptive statistics, we found that most of our companies are able to play but not full play a tax shield effect. In addition, listed companies in our country, the number of playing positive effect of debt financing is less than the number of playing negative effects.Through the descriptive statistical analysis, we draw the overall situation of listed companies’tax shield and financial leverage effect of debt financing. So, for the listed companies of our country, how their existing debt levels and debt structure did impact tax shield and financial leverage effects of debt financing? Whether there are differences between industries? What factors influence the differences? This paper is focus on these problems.Through empirical analysis, we know that the tax shield and financial leverage effect of debt financing are subjected to macroeconomic factors’affecting, and they are not the same effecting factors, the factor of effecting tax shield effect is the stability of the industry, and the factor of effecting financial leverage effect is the concentration of the industry. Through the establishment of the final model, this paper proved the following conclusions:(1) The listed companies in China, the number of playing positive effect of debt financing is less than the number of playing negative effects, a lot of company’s profitability is not strong enough.(2) The listed companies in China, most of our companies are able to play but not full play a tax shield effect.(3) For the profitability stronger company, improve asset-liability ratio especially long-term debt ratio will increase the tax shield effect and the positive effect of financial leverage, these companies can improve their debt ratio appropriately.(4) For the profitability weaker company, improve asset-liability ratio especially long-term debt ratio will increase the tax shield effect, but also increase the negative effect financial leverage, the value of the enterprise presents uncertainty. Therefore, these companies should not blindly increase the debt ratio.(5) The listed companies in China, the financial leverage effect of debt financing are subjected to the factor of the concentration of the industry. For the profitability stronger company, companies can improve their debt ratio appropriately; For the profitability weaker company, companies can reduce their debt ratio.(6) The listed companies in China, the tax shield effect of debt financing are subjected to the factor of the stability of the industry. For the stable operation of company, they can improve their debt ratio appropriately to make full use of the tax shield effect of debt financing.