Tax Burden, Excessive-employment And Firm Value

China is a country with a population of1.3billion. If employment problem ishandled improperly, which is of great important，a large number of the unemployed iseasily causing great negative impact on social stability. Therefore, the expansion ofemployment has been one of the main goals of governments. In order to promoteemployment, government officials often use a variety of administrative or financialmethods to intervene employment policy of enterprise, restricting enterprises, especiallystate-owned enterprises, lying off excessive employee behavior according to its owndevelopment. Previous research on excessive employment mainly focused on the causesand economic consequences. But there is rarely literature further discuss that by whatmeans for the government makes excessive employment of enterprises into reality. Taxrelief is an important part of government financial means, so this study will analyze theimpact of corporate income tax on Chinese listed firms’ employment policy, andexamine the influence of excessive employment to firm value.This paper discusses the existing literature at home and abroad, reviews the reasonsabout why excessive employment exists, and then elaborates some theories, such asgovernment intervention theory and agency theory. Then based on a sample of allnon-financial A-share firms of stock markets of Shanghai and Shenzhen from year2009to2012, this paper study the effect of tax relief on the employment behavior of listingCorporation, and the valuation effect of excessive employment is also examined. Theempirical results show that the corporate tax burden and excessive employment havesignificantly negative correlation, namely the tax burden is lower, and theenterprises hire more staff. When it comes to the non-state-ownedenterprises, the excessive employment is influenced by the tax burden more thanstate-owned enterprises. In addition, there is a significant negative relationship betweenexcessive employment and enterprise value and excessive-employment has largernegative impact to state-owned enterprises.The contribution of this study is mainly reflected in the following two aspects:(1)there is few literatures study how the government influences the employment behavior by fiscal measures. This paper explores the excessive-employment from the perspectiveof corporate tax, enriching the researches in this field, providing the theoretical basisand empirical evidence to improve tax relief policy in china.(2) This study considersthe non-state-owned enterprises which is existing excessive employment. The currentstudy about excessive employment always focused on state-owned enterprises. There isfew literature study excessive employment of non-state-owned enterprises insystem. This study contributes to a more in-depth, comprehensive analysis of the causesand consequences of excessive employees in enterprises.