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March 1, 2024China & World Economy

Value‐added Tax and Leverage: Evidence from China's Value‐added Tax Rate Reform

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Authors

HFHongsheng FangLZLexin ZhaoXLXiufen Liu

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Overview

Quasi-natural experiment demonstrates that value-added tax rate cuts reduce corporate leverage in Chinese firms, suggesting improved capital structure and reduced debt risk.

Key Points

  • Value-added tax rate reform significantly reduced total corporate financial leverage, driven primarily by a decrease in short-term liabilities.
  • Profitability and operating cash flows served as major intermediary channels, mitigating corporate asset–liability mismatch and overall debt risk.
  • Quasi-natural experiment analysis shows stronger deleveraging in enterprises characterized by elastic demand and lower intermediate input ratios.

Cite This Study

Fang et al. (2024) studied this question.

synapsesocial.com/papers/68e7648eb6db6435876d9d33https://doi.org/10.1111/cwe.12529
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