The effect of banking system reform on investment–cash flow sensitivity: Evidence from China

This study investigates the effect of banking system reform on the investment behavior of Chinese listed firms. We find that the politically-oriented investment problem for state-controlled listed companies is mitigated by the reform due to foreign participation in the management of Chinese banks. The problem of underinvestment in non-state-controlled listed companies also appears to be alleviated due to an increase of bank loans. We include leverage in our analysis and the main findings are robust. The results provide evidence that Chinese banking system reform has increased the efficiency of resource allocation, easing investment distortions in state-controlled listed companies and reducing financial constraints in non-state-controlled listed companies.     

Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland

This paper focuses on the effects of a corporate income flat tax reform on businesses’ investment decisions. Since 1990, several Swiss states (cantons) have been switching from a graduated to a flat tax rate scheme on profits. The paper assesses the effects of such a reform both on the number of establishments (i.e. extensive margin of investment) and on the number of employees (i.e. intensive margin) in a given jurisdiction by computing a difference-in-differences estimation. Our results suggest that the introduction of a flat tax reform on corporate income taxes has a negative and statistically significant impact on both margins of investment. Moreover, the effect is considerably larger for riskier firms, suggesting that progressive taxation acts as an insurance effect for risk-averse entrepreneurs.     

The effect of corporate tax avoidance on salary distribution——Empirical evidence from publicly listed companies in China

Corporate tax avoidance is ubiquitous and has a wide range of economic implications. In this paper, we investigate the effect of corporate tax avoidance on the pay level for employees and the internal pay gap between executives and ordinary employees based on the perspective of salary distribution. The results show that corporate tax avoidance can significantly improve the average pay level of all the staff, but the “inclusive” benefit on employee remuneration brought by tax avoidance is not evenly distributed. More of the increased remunerations are allocated to the top management, further widening executives-ordinary employees pay gap. In addition, evidence from the cross-section analysis reveals that the current life cycle, the level of realized pay, and the short-term investment strategy in Chinese publicly listed companies can significantly affect the relationship between corporate tax avoidance and the internal pay gap. Further analysis suggests that the remuneration-increase effect of corporate tax avoidance can contribute to improving employees' efficiency, but the uneven distribution of tax-saving benefits interferes with such improvement to some extent. Overall, our results demonstrate that reasonable and effective corporate tax avoidance features a certain degree of “inclusiveness” since it helps raise the pay level of the whole staff, which sheds light on the necessity of persistent implementation of tax and fee reduction policies in China.     

Investments in human capital: The evidence from China’s new rural pension scheme

Human capital accumulation is a radical cure for income inequality and poverty issues in the process of economic development. In addition to exploring the impact of education-related policies on human capital investment, many scholars have begun to pay attention to the spillover effect of non-education policies on human capital investment behaviors. In this paper, we investigate whether the New Rural Pension Scheme (NRPS) initiative has had an impact on human capital investment behavior in rural China. We use a China Family Panel Studies sample and apply propensity score matching and difference-in-differences methodologies to test for the causal effects of this reform initiative. The results show that NRPS has had a positive effect on households’ human capital investments. In particular, education expenditures on children aged zero to 16 years increased substantially as a result of NRPS, with a more substantial causal effect for girls and in wealthier provinces. The results should be of great interest to academicians and policymakers interested in public policy and development.     

The price of carbon risk: Evidence from China’s bond market

Using a 2009–2019 sample of Chinese bond issuers, we examine the effect of carbon risk on bond financing costs. Relative to low carbon risk issuers, high carbon risk issuers have substantially larger bond credit spreads, mainly because their credit risk is greater and they invest the funds in non-green projects. This positive relationship is more pronounced for issuers with financing constraints, those not making a green transition and those in cities with stringent environmental regulations. We find a reversed effect during the COVID-19 pandemic. However, China’s carbon peak and carbon neutral goals have renewed the focus on carbon risk. Carbon risk also causes bond issuers to scale back production and negatively affects their likelihood of receiving long-term financial support. Our findings suggest that investors consider carbon risk and charge a corresponding risk premium.     

The impact of energy-exporting countries’ EPUs on China’s energy futures investors: Risk preference,investment position and investment horizon

This study brings some new insights into EPU risk management. By categorizing China’s energy futures (CEF) investors by risk preference, investment position and investment horizon, we identify how EPU in four energy-exporting countries affects CEF investors. The Russian EPU mainly produces influence on short-run investors and risk-seeking investors. The Australian EPU affects risk-seeking investors heavily, while the Brazilian EPU acts on risk-seeking investors with short positions. In terms of China’s coking coal futures, changes in Russian EPU generate the weakest impact on various types of investors, while the US EPU affects medium-run risk-averse and long-run investors. The Australian EPU’s impact on investor types covers a wide range, while the Brazilian EPU affects short-run risk-averse and long-run investors. Moreover, for medium-run CEF investors, energy-exporting countries’ EPU risk characteristics is most dynamic. Changes in the EPU risk impact type mainly occurred during the US-China trade war and the outbreak of COVID-19.     

Investor valuations of Japan’s adoption of a territorial tax regime: quantifying the direct and competitive effects of international tax reform

This paper examines the impact of Japan’s 2009 adoption of a territorial tax regime using event study methods which leverage individual firm characteristics to identify underlying drivers of market reactions. Differences in Japanese firms’ foreign and domestic effective tax rates yield an aggregate capitalization effect of \(\yen \)4.3 trillion, while firms with less prior foreign exposure and fewer opportunities for tax avoidance experienced relatively larger abnormal returns. We attribute these results to tax savings on existing undistributed foreign earnings, enhanced opportunities for international expansion, and cultural biases against tax planning. Spillovers to the US (through tax or firm competition) appear insignificant.     

Who’s calling? The effect of phone calls and personal interaction on tax compliance

International Tax and Public Finance - Most tax agencies use letters as the method of communicating with taxpayers. Still, other technologies exist that could be more effective. This paper reports...     

Local government centralization and corporate ESG performance: Evidence from China’s county-to-district reform

As a city–county consolidation with Chinese characteristics, China’s county-to-district (CtD) reform transfers a county’s autonomy to a city, thereby strengthening the administrative, decision-making, fiscal and other powers of the prefecture-level municipal government, which effectively enables the centralization of local governments. Based on this exogenous quasi-natural experiment, we use a difference-in-differences (DID) approach to empirically examine the impact of prefecture-level municipal government centralization on companies’ ESG performance. The results show that municipal government centralization can significantly promote corporate ESG performance, which represents environmental protection, social responsibility and corporate governance behavior. The mechanism analysis also shows that the CtD reform can address market segmentation, alleviate policy uncertainty and reduce rent-seeking, which further improves ESG performance.     

The effect of controlling shareholders’ excess board seats control on financial restatements: evidence from Taiwan

This study examines the relation between controlling shareholders’ excess board seats control and financial restatements. An analysis of a sample comprising 106 Taiwanese listed firms (53 restating firms vs. 53 non-restating control firms) shows that financial restatements are more likely to occur when there is a greater divergence between controlling shareholders’ board seats control rights and ownership rights. We also find that the excess board seats control of controlling shareholders is positively associated with the materiality and pervasiveness of financial restatements. Overall, these results suggest that the entrenchment incentive from controlling shareholders’ excess control motivates firms to adopt aggressive accounting policies.