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Tax incentive and stock price crash risk: Evidence from VAT credit refund policy of China

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  • Zhu, Li
  • Zhou, Tao
  • Wen, Yufei

Abstract

Utilizing a Difference-in-Differences methodology, this study assesses the impact of China's VAT credit refund policy on stock price crash risk (SPCR). The findings demonstrate that the policy substantially lowers the crash risk among pilot enterprises by decreasing tax avoidance and enhancing earnings quality. The proposed influence is more prominent in enterprises led by financially experienced executives, those with weaker corporate governance, and in regions with lower digital and market development. These results highlight that the VAT credit refund policy acts as an external governance mechanism, reducing firm risk and contributing to greater financial market stability.

Suggested Citation

  • Zhu, Li & Zhou, Tao & Wen, Yufei, 2025. "Tax incentive and stock price crash risk: Evidence from VAT credit refund policy of China," Research in International Business and Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:riibaf:v:78:y:2025:i:c:s0275531925002302
    DOI: 10.1016/j.ribaf.2025.102974
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