IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v86y2025ipbs1544612325016344.html

Tax deductions, financial leverage, and firm value

Author

Listed:
  • Yang, Ruoying
  • Li, Xiangrong

Abstract

In this study, we explore the implications of tax deductions for firm value by utilizing a comprehensive sample of A-shared listed Chinese firms on the Shanghai Stock Exchange and Shenzhen Stock Exchange between 2012 and 2023. We find a positive association between tax deductions and firm value, and this relationship is more evident for firms with higher leverage ratios. Our results hold across a group of robustness tests (RTs). Overall, this study enriches our knowledge about the impact of tax policies on firm value as well as offers valuable practical guidance for managers and policymakers.

Suggested Citation

  • Yang, Ruoying & Li, Xiangrong, 2025. "Tax deductions, financial leverage, and firm value," Finance Research Letters, Elsevier, vol. 86(PB).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pb:s1544612325016344
    DOI: 10.1016/j.frl.2025.108380
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325016344
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.108380?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Tang, Meili & Wang, Yu, 2022. "Tax incentives and corporate social responsibility: The role of cash savings from accelerated depreciation policy," Economic Modelling, Elsevier, vol. 116(C).
    2. Shen, Zhihan & Zhang, Ruipeng & Li, Peigong, 2024. "Local government debt and corporate tax avoidance: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 985-1000.
    3. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
    4. Tang, Hua & Xiong, Langyu & Peng, Ru, 2024. "The mediating role of investor confidence on ESG performance and firm value: Evidence from Chinese listed firms," Finance Research Letters, Elsevier, vol. 61(C).
    5. Wen, Wen & Cui, Huijie & Ke, Yun, 2020. "Directors with foreign experience and corporate tax avoidance," Journal of Corporate Finance, Elsevier, vol. 62(C).
    6. He, Lerong & Jiang, Xiaozhen & Fang, Liting, 2023. "Tax policy reform and corporate innovation in China," Finance Research Letters, Elsevier, vol. 55(PA).
    7. Graham, John R. & Tucker, Alan L., 2006. "Tax shelters and corporate debt policy," Journal of Financial Economics, Elsevier, vol. 81(3), pages 563-594, September.
    8. Zhao, Hong & Shen, Hao & Wang, Haizhi & Zhu, Yun, 2024. "State corporate tax changes and bond pricing: U.S. evidence," International Review of Financial Analysis, Elsevier, vol. 92(C).
    9. Tian, Binbin & Yu, Baixue & Chen, Shi & Ye, Jingjing, 2020. "Tax incentive, R&D investment and firm innovation: Evidence from China," Journal of Asian Economics, Elsevier, vol. 71(C).
    10. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
    11. Feng, Chen & Ye, Yongwei & Bai, Caiquan, 2023. "Tax enforcement and corporate financial irregularities: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 88(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pan, Xiaozhen & Aimaiti, Sabahati, 2025. "Actual controllers with foreign residency rights and corporate tax avoidance: Evidence from private listed companies in China," Emerging Markets Review, Elsevier, vol. 69(C).
    2. Agnes Aurora Ngelo & Yani Permatasari & Iman Harymawan & Nadia Anridho & Khairul Anuar Kamarudin, 2022. "Corporate Tax Avoidance and Investment Efficiency: Evidence from the Enforcement of Tax Amnesty in Indonesia," Economies, MDPI, vol. 10(10), pages 1-22, October.
    3. Zhang, Yan & Wu, Fang, 2025. "Tax enforcement and corporate overinvestment: Evidence from China’s STB-LTB merger," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1212-1231.
    4. Huseynov, Fariz & Klamm, Bonnie K., 2012. "Tax avoidance, tax management and corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 804-827.
    5. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
    6. Clemente-Almendros, José A. & Sogorb-Mira, Francisco, 2018. "Costs of debt, tax benefits and a new measure of non-debt tax shields: examining debt conservatism in Spanish listed firms," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 21(2), pages 162-175.
    7. Finér, Lauri & Ylönen, Matti, 2017. "Tax-driven wealth chains: A multiple case study of tax avoidance in the finnish mining sector," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 48(C), pages 53-81.
    8. Ioan TalpoÅŸ & Ionel Vancu, 2009. "Corporate Income Taxation Effects On Investment Decisions In The European Union," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(11), pages 1-51.
    9. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.
    10. Akhtar, Shumi & Akhtar, Farida & John, Kose & Wong, Su-Wen, 2019. "Multinationals' tax evasion: A financial and governance perspective," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 35-62.
    11. Tan, Xue & Yin, Jingwei & Lin, Ning, 2025. "The unforgettable past: The long-term impact of war on corporate tax avoidance in modern China," Research in International Business and Finance, Elsevier, vol. 77(PA).
    12. Huseynov, Fariz & Sardarli, Sabuhi & Zhang, Wei, 2017. "Does index addition affect corporate tax avoidance?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 241-259.
    13. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "Corporate tax avoidance and stock price crash risk: Firm-level analysis," Journal of Financial Economics, Elsevier, vol. 100(3), pages 639-662, June.
    14. Voeller, Dennis & Overesch, Michael, 2008. "The Impact of Personal and Corporate Taxation on Capital Structure Choices," ZEW Discussion Papers 08-020, ZEW - Leibniz Centre for European Economic Research.
    15. Jin, Xiaoye, 2021. "Corporate tax aggressiveness and capital structure decisions: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 94-111.
    16. Juan Monterrey Mayoral & Amparo Sánchez Segura, 2015. "Planificación fiscal y Gobierno Corporativo en las empresas cotizadas españolas," Hacienda Pública Española / Review of Public Economics, IEF, vol. 214(3), pages 55-89, September.
    17. Michael Overesch & Dennis Voeller, 2010. "The Impact of Personal and Corporate Taxation on Capital Structure Choices," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(3), pages 263-294, September.
    18. Jiacai Xiong & Linghong Chen & Dongwei Su & Kejing Chen, 2025. "Tax Enforcement and Corporate Labor Income Share: Evidence From a Quasi‐Natural Experiment in China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(7), pages 3959-3975, October.
    19. Kathleen Petrie Fuller & Qun Wu & Serhat Yildiz, 2024. "Corporate debt policy and tax uncertainty," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 247-270, January.
    20. Yue Sun & Dengjun Zhang, 2026. "Perceived tax obstacles and corporate environmental activities," Economics Bulletin, AccessEcon, vol. 46(1), pages 133-151.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:86:y:2025:i:pb:s1544612325016344. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.