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Too far east is west: tax risk, tax reform and investment timing

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  • Wanyi Chen

Abstract

Purpose - Tax risk refers to the uncertainty of future corporate taxation. Tax reform is a key issue in major current tax system adjustments that seriously affect a firm's tax risk. In response to changes in the economic environment, many countries are actively executing tax reform. Long-term reforms implemented for a smooth transition may instead increase corporate risk. This study examines the relationship among tax risk, tax reform and investment timing. Design/methodology/approach - Selecting the Shanghai Stock Exchange and Shenzhen Stock Exchange A-share listed companies' panel data from 2008 to 2017, the paper used survival analysis and the propensity score matching-difference in difference models. Findings - The results show that a higher corporate tax risk results in more deferred investments, which are further examined using the latest Chinese value-added tax reform as a natural experiment. Originality/value - The conclusion serves as an important reference for governments to balance reform time and to support enterprises in effectively identifying and managing tax risk under tax reform.

Suggested Citation

  • Wanyi Chen, 2020. "Too far east is west: tax risk, tax reform and investment timing," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 17(2), pages 303-326, June.
    • Handle: RePEc:eme:ijmfpp:ijmf-03-2020-0132
    DOI: 10.1108/IJMF-03-2020-0132
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    Citations

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    Cited by:

    1. Chen, Wanyi & Jin, Rong, 2023. "Does tax uncertainty affect firm innovation speed?," Technovation, Elsevier, vol. 125(C).

    More about this item

    Keywords

    Tax risk; Tax reform; Uncertainty; Investment timing; Reform duration; G31; E62; D81;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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