Debt financing and sharp currency depreciations: wholly versus partially-owned multinational affiliates

This paper provides empirical evidence on two potential costs of shared ownership of German affiliates abroad. First, in periods of currency crises, wholly-owned affiliates, in contrast to partially-owned affiliates, seem to circumvent financial constraints by accessing capital from their parent companies. In terms of differences in performance regarding sales of both types of firms, wholly-owned affiliates have a significantly better sales performance than partially-owned affiliates in periods of crises. This finding contributes to the evidence that FDI helps in mitigating the negative consequences of sharp currency depreciation, and stresses that this effect works especially through capital inflows to wholly-owned affiliates. Second, the debt financing of partially-owned affiliates is less sensitive to the tax rate suggesting that partially-owned affiliates rely less on international debt shifting than wholly-owned affiliates. This indicates that partially-owned affiliates are less flexible to exploit tax efficient strategies.     

Corporate Taxes and Financing Methods for Taxable Acquisitions*

We examine the influence of corporate taxes on U.S. firms' financing methods for taxable acquisitions of 100 percent of a target corporation's stock. We conduct tests of acquirer firms' use of debt or internal funds as the funding source for these acquisitions over the period 1987‐97. Our results provide the first empirical evidence that U.S. firms' use of debt to fund acquisitions significantly declines as foreign tax credit limitations reduce the marginal tax benefits received from borrowing. This finding is consistent with earlier speculation that U.S. foreign tax credit provisions could materially affect the capital costs of U.S. companies in debt‐financed acquisitions. We also find that these firms are generally high‐tax‐rate corporations whose financing choices are not significantly influenced by whether they acquire target‐firm tax loss carryovers. Our findings contribute to the accounting literature on the influence of taxes on the structure and financing of corporate acquisitions.     

Separation of ownership and control for Chinese listed firms: Effect on the cost of debt and the moderating role of bank competition

This research investigates the effect of the separation between firm ownership and control on the cost of debt, with attention to the moderating role of state ownership and bank competition. We make use of a sample of 1744 Chinese A-share firms for the years 2011–2017. We find that separation between ownership and control is positively associated with the cost of debt. This is consistent with the view that separation of control from ownership allows controlling shareholders to engage in tunneling and other behaviors that increase the risk of default. State ownership weakens this positive link because government debt guarantees mitigate the risk of default. Greater competition in the banking industry generally reduces the cost of debt for non-state enterprises while having no effect for state enterprises. At the same time, greater bank competition amplifies the positive effect of ownership and control separation on debt cost for non-state enterprises as banks must still cover the higher default risk. Finally, the global financial crisis raised the cost of debt for non-state enterprises but had no effect for state enterprises.     

Do Chinese publicly listed companies adjust their capital structure toward a target level?

We study the determinants of capital structure for 650 Chinese publicly listed companies over the period from 1999 to 2004. We posit that a firm's decision on capital structure is inherently dynamic, and estimate the resulting dynamic capital structure model. The main findings of the paper are as follows: (i) Chinese firms adjust toward an equilibrium level of debt ratio in a given year at a very slow rate; (ii) firm size, tangibility and state shareholdings are positively associated with firm's leverage ratio, while profitability, non-debt tax shields, growth and volatility are negatively related to firm's leverage ratio; (iii) lagged profitability has a negligibly small and positive impact on firm's leverage ratio; (iv) for a firm experiencing a large reduction in its leverage ratio only about 11% of the discrepancy between its desired and actual leverage level is eliminated within a year (compared to more than 18% for full firm sample); (v) extending the basic model to allow for both the target level and the speed of adjustment to be endogenously determined, we find that Chinese firms tend to adjust faster if they are farther away from the equilibrium leverage level; and lastly (vi) extending the sample period to cover the earlier periods starting from 1993, when the Chinese stock markets were first developed, results in a slower speed of adjustment for firms in the below target sample.     

Do R&D tax incentives work? Firm-level evidence from China

Tax incentives have been used worldwide to encourage firm R&D, but there is little evidence on their effectiveness as a policy tool in developing countries. We use a panel dataset of Chinese listed companies covering 2007 to 2013 to assess the effects of tax incentives on firm R&D expenditures and analyze how institutional conditions shape these effects. Our results show that tax incentives motivate R&D expenditures for our sample firms. A 10% reduction in R&D user costs leads firms to increase R&D expenditures by 3.97% in the short run. We also find considerable effect heterogeneity: Tax incentives significantly stimulate R&D in private firms but have little influence on state-owned enterprises' R&D expenditures. Moreover, the effects of tax incentives are more pronounced for private firms without political connections. Hence, reducing political intervention complements tax incentives' capacity to foster firm R&D in developing countries.     

Tax Incentives and Maturity Mismatch between Investment and Financing: Evidence from China

This paper examines the effects of China's accelerated depreciation policy (ADP) on the maturity mismatch between investment and financing. Using panel data for China's A-share nonfinancial listed companies from 2010 to 2019 and a staggered difference-in-differences approach, we found the following. First, ADP significantly aggravated the degree of corporate maturity mismatch, and this result was robust across multiple checks. Second, due to an insufficient long-term loan supply, firms had to finance the fixed investments induced by ADP with short-term debts, leading to maturity mismatches. Third, the positive policy effects were mainly significant for firms with high policy exposure, high-risk preferences, a high degree of information asymmetry, and firms with weak long-term financing capacity. Finally, maturity mismatch exacerbated corporate financial risks. Our research findings indicate that passive maturity mismatch is prevalent among Chinese companies and emphasize the need to address financial repression in order to mitigate the potential financial risks that may arise from tax incentives.     

Corporate Debt Maturity Structure: The Role of Firm Level and Institutional Determinants in Selected African Countries

An appropriate debt maturity structure is essential for firms to enable them align asset structure to liabilities to prevent a mismatch. This study investigates the role of firm-level and institutional variables on debt maturity structure in selected African countries. Using panel generalised method of moment that addresses endogeneity problem; our findings reveal a dynamic process of adjustment to optimal debt maturity structure. Furthermore, firm-level variables (leverage, asset structure and firm size) provide support for the contracting cost, signalling and matching principle theories of debt maturity structure. Results of institutional variables suggest that better developed institutions promote long-term debt maturity structures.     

东道国社会信任能降低企业跨国经营的不确定性吗?——以海外子公司所有权结构设计为例

理解东道国制度环境并选择与之相适应的管理方式对企业跨国经营获得成功具有重要影响。现有文献侧重于分析东道国规制制度和认知制度对企业跨国经营的影响,对规范制度研究较少。基于来自世界价值观调查的东道国社会信任数据以及中国上市公司2009—2018年在海外设立的6 921个子公司的数据,本文探讨规范制度的核心维度——东道国社会信任如何影响中国企业对海外子公司的管控。本文提出东道国外群体社会信任和内群体社会信任影响企业跨国经营所面临的交易成本和不确定性,进而影响母公司对海外子公司的持股水平。此外,文化距离和母公司跨国经验是东道国社会信任效应的重要边界条件。本文通过揭示东道国社会信任影响海外子公司管控的理论机理,不仅增进了人们对于规范制度及其对企业跨国经营战略的影响的认识,还对企业评估东道国规范制度环境、科学地设计海外子公司的所有权结构具有启示意义。     

基于产权性质分类的上市公司债务治理效应分析

文章在分析了中国上市公司债务治理效应弱化的原因的基础上,根据产权性质对上市公司进行分类,通过回归分析,分别检验了国有控股上市公司和非国有控股上市公司债务治理效应存在的差异.研究发现,债务融资没有起到抑制经理代理成本和提高公司绩效(公司价值)的作用,没有发挥积极的治理功能;相对于非国有控股上市公司,国有控股上市公司的债务治理效应较低.     

Tax and leverage: Evidence from China

This study exploits two institutional features of China to test the causal link between tax and capital structure. First, the central government exclusively determines the corporate tax rate in China, which results in changes in corporate income tax rates across different Chinese public firms over the period of 2000–2011. Such mandatory tax shifts provide a quasi-natural experimental setting for our difference-in-differences analysis investigating the impact of tax on leverage. We find evidence supporting the dynamic trade-off theory, namely that firms are unresponsive to tax cuts but increase long-term leverage when taxes rise (particularly those in low statutory tax regimes). Second, governmental intervention in capital allocation is common in China such that political connections are usually regarded as an asset for firms in accessing bank loans. Using anti-corruption events as shocks to the value of political connections over the sample period, our research is the first study to show that political connections become a liability that enables banks to recall loans from affected firms during the anti-corruption campaign periods. This change overturns the typical tax-leverage relationship observed, as we find anti-corruption affected firms reduce long-term leverage when taxes are cut and they become insensitive to tax increases. Our results reveal the importance of political ties in explaining how firms adjust their capital structure to tax changes, which is extremely relevant to policy makers and regulators when monitoring bank loan markets.     

新时期公司境外税务筹划策略研究

越来越多的中国公司跨出国门从事国际商业活动。由于境内外的税务环境、税法及征管与中国存在差异,中国公司必须承担税负带来的风险从而影响境外经营的收益。文章从商业经营运作模式、国外经营地点的选择、境外税务代理及服务、费用的确认和安排、内部交易转移定价、税收优惠政策、国际税收协定等方面提出了税务筹划的内容,提倡中资公司在合理合法的前提下,综合地运用差异空间做好税务筹划,降低税务成本。     

CAPITAL STRUCTURES IN EMERGING STOCK MARKETS: THE CASE OF HUNGARY

This paper studies developments in the Hungarian capital markets during 1992–95 and investigates the determinants of the capital structures of companies listed on the Budapest Stock Exchange. Hungarian companies had very low leverage ratios. Empirical findings indicate that the negative relationship between leverage and proportion of tangible assets was primarily caused by the lack of long‐term debt financing. The relationship between leverage and the size of the company provides some indication of the importance of trade credits for the companies. The more profitable companies had less debt than less profitable ones. This is attributed to the firms’financial incentives aggravated by the segmentation of Hungarian credit markets and credit rationing within the financial environment. Manufacturing firms and firms with the state among their major shareholders enjoyed higher levels of debt financing relative to other companies.     

Trade policy uncertainty,development strategy,and export behavior: Evidence from listed industrial companies in China

On the basis of new structural economics theory and heterogeneity of firm viability, this study analyzes the effect of trade policy uncertainty on firm export behavior using panel data of Chinese listed companies in the industrial sector. Empirical results show that the high uncertainty of trade policy significantly inhibits the extensive and intensive margins of firm export, while heterogeneity effect occurs across firms with different levels of viability. The development strategy that violates comparative advantage strengthens the negative impact of trade policy uncertainty on firm export. Despite their correlation with viability, the type of ownership, total factor productivity, and long-term loan are not suitable proxies for firm viability. Under high uncertainty of trade policy, export market diversification can alleviate the restraining effect of development strategy on firm export, whereas firms in regions with high industrial-oriented development tend to be vulnerable to cost shocks, thus reducing export market diversification. Findings present important implications for emerging market countries to enact better international trade and economic policies.     

治理环境、宗教因素与债务融资行为

以2002 - 2011年我国A股主板上市公司为研究样本,研究了宗教因素对上市公司债务融资行为的影响,包括公司的债务融资规模和公司的债务期限结构两方面。实证研究发现,上市公司所受的宗教影响程度与债务融资规模和债务期限结构是负相关的关系,在宗教影响较为浓厚的地区,上市公司总负债率和长期负债率比较低,说明这类公司更倾向于规避风险,而且更倾向于采用短期债务融资的方式。进一步研究表明,上市公司所处的地区治理环境会强化宗教因素与公司债务水平和债务期限结构的负相关关系。     

“Subsidies” or “taxes”? Corporate credit misallocation induced by the nexus of state-owned enterprises and state-owned banks

Diverging from common claims made in the literature, this paper shows that “two-way” credit misallocation is linked to state ownership status. Specifically, not all Chinese state-owned firms benefit from their ownership status by obtaining lower interest costs as a type of subsidy. Some firms are subjected to higher interest costs as a form of tax. We report further evidence for the relationship between financial development and economic growth by accounting for heterogeneity in interstate banking coverage. From listed and unlisted firms’ data, we find that when the presence of state-owned banks is strong, state ownership-associated distortions in interest costs are more severe.     

The Complementarity between Tax Avoidance and Manager Diversion: Evidence from Tax Haven Firms

We investigate whether tax avoidance and manager diversion are complementary when the costs of diversion are low by comparing dividend payouts, performance, and overinvestments of tax haven firms versus other multinational firms based in countries with weak and strong investor protections. Desai and Dharmapala (2006, 2009a, b) and Desai et al. (2007) set forth a theory of tax avoidance within an agency framework (the D&D theory) based on the assumption that tax avoidance and manager diversion are complementary when the corporate governance system is “ineffective” (i.e., the manager's expected costs of diversion are low). Tax haven firms are corporate groups whose parent firms are incorporated in tax haven countries that are not the countries where the groups’ headquarters or primary operations are located (i.e., their “base” countries). We argue that tax haven incorporation potentially lowers the costs of diversion for managers of firms based in countries with weak investor protections. Using a sample from 28 base countries, we provide evidence that manager diversion and tax avoidance are complementary for tax haven firms based in countries with weak investor protections but not for tax haven firms based in countries with strong investor protections. Our results are consistent with the complementarity assumption underlying the D&D model and provide additional insights into the potential impact of the decentralization of the global firm.     

Zombie Firms and Debt Accumulation: A Theoretical Framework and Chinese Experience

In recent years, as China has grappled with rising debt and broad economic restructure, the prevalence of zombie firms has become a critical problem. This paper provides a theoretical framework illustrating the rationale behind the occurrence of zombie firms from the perspective of banks. We develop differential equations to model a bank's expectation and the ex ante estimate that underlies its decision to refinance an insolvent borrower. An optimistic expectation is essential in zombie lending and is intrinsic to the countercyclical pattern of zombie firms. Our model also predicts that debt can build up to an unsustainable level if recovery of profitability is sluggish or the initial debt burden is too high. Examining the Chinese experience of zombie firms over 2007–2017, this paper highlights two findings. First, the share of zombie firms among Shanghai and Shenzhen A‐share listed companies demonstrates a countercyclical pattern. Second, the positive correlation between zombie share and debt accumulation across manufacturing sectors sheds light on the link between zombie firms and the rising corporate debt in China. To deal with the “zombie” problem, the government should carefully weigh its policies to avoid further distortions because the occurrence of zombie firms may be inevitable and impossible to eliminate.     

Differences in corporate saving rates in China: Ownership,monopoly, and financial development

Using the data of the listed non-financial companies from 2003 to 2012, this paper conducts a firm-level empirical analysis to reveal the determinants that lead to differences in saving rates of different enterprises in China. Particularly, we explore the discrepancies in the Chinese enterprises' saving rates from the new perspectives of ownership type, monopoly status, and financial development. We find that only some financial indicators of a firm, including the size and the long-term solvency ability, have direct impact on its saving rate. Besides, the difference in the saving rates between private firms and state-owned firms is insignificant while monopolies have higher saving rates than non-monopolies. Most importantly, financial development generally reduces a firm's saving rate and the impact is independent on its ownership type and monopoly status. Moreover, financial development decreases the influence of a firm's short-term solvency and profitability on its saving rate.     

Long-term evolution of the firm value and behavior of business groups: Korean chaebols between weak premium,strong discount,and strong premium

This paper analyzes the long-term evolution of the costs and benefits associated with chaebols or diversified business groups in Korea. Chaebol-affiliated firms in Korea have experienced dramatic changes in their costs and benefits along three time periods (1984–1988, 1990–1995, and 2001–2005). They did not suffer a value loss relative to non-affiliated firms in the 1980s, but did so in the 1990s. In the post-crisis period, however, they began to show value gains.To identify the causes of these changes, we examine if chaebol firms prioritize profit stability over profit maximization, overinvest in low-return businesses, cross-subsidize the low-performing affiliates of their group, and possess greater debt capacity, consequently enjoying lower tax burdens. We discover that in the 1980s, chaebol firms generally enjoyed various perks, such as tax breaks, but shied away from excessive investment activities. In the 1990s, their performance worsened because of substantial over-investment, despite several advantages. However, after massive restructuring and sorting out following the 1997 Asian financial crisis, chaebols emerged as very profitable firms correcting over-investment despite the absence of tax perks and debt-carrying advantages.     

The rise and decline of industrial foundations as controlling owners of Swedish listed firms: the role of tax incentives

ABSTRACT

Beginning in the interwar period, industrial foundations became a vehicle for corporate control of large listed firms in Sweden. In the 1990s they were replaced by wealthy individuals who either directly own controlling blocks or who own them through holding companies. We study potential explanations for this change and propose two tax-related candidates: shifts in the relative effective taxation across owner types and the dismantling of inheritance taxation that prevented the generational transfer of the ownership of large controlling blocks. We exploit newly computed marginal effective capital income tax rates across capital owners, accounting for all relevant factors, including rules governing tax exemptions. We show that the 1990–91 tax reform, abolition of the wealth tax for controlling owners in 1997, 2003 tax exemption of dividends and capital gains on listed stock for holding companies with a voting or equity share of at least 10 percent, and abolition of the inheritance and gift taxes in 2004 reversed the rules of the game. Recently, control has largely been wielded through direct ownership, and the role of foundations is rapidly declining. These findings point to the importance of tax incentives for the use of foundations as the control vehicle of listed firms.