IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0293385.html
   My bibliography  Save this article

The impact of tax reduction on enterprises’ financialization-A quasi-natural experiment based on the reduction of VAT rate

Author

Listed:
  • Shu Duan
  • Yuzhong Lu
  • Yujia Cheng
  • Qian Liu

Abstract

This study examines the influence of the reduction in value-added tax (VAT) rates in China during 2018 and 2019 on corporate financialization. By employing a difference-in-differences model and utilizing data from Chinese A-share listed companies between 2017 and 2020, we assess the effects of tax reduction policies. Moreover, it achieves this outcome through three main pathways: alleviating financing constraints, boosting fixed asset investment, and weakening corporate financial arbitrage motives. Further analysis demonstrates that the inhibitory effect of VAT rate reduction on corporate financialization is more pronounced for non-manufacturing companies, businesses reliant on the basic tax rate as their primary revenue source, companies with low intermediate input rates, and those with a strong ability to shift the tax burden. Additionally, debt financing costs play a crucial role in moderating the relationship between tax reduction policies and corporate financialization. The conclusions drawn from this study provide valuable empirical evidence that can contribute to the refinement of VAT reduction policies and the prevention and resolution of financialization at the micro-level.

Suggested Citation

  • Shu Duan & Yuzhong Lu & Yujia Cheng & Qian Liu, 2023. "The impact of tax reduction on enterprises’ financialization-A quasi-natural experiment based on the reduction of VAT rate," PLOS ONE, Public Library of Science, vol. 18(12), pages 1-23, December.
    • Handle: RePEc:plo:pone00:0293385
    DOI: 10.1371/journal.pone.0293385
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0293385
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0293385&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0293385?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
    ---><---

    References listed on IDEAS

    as
    1. repec:eme:par000:par-07-2016-0066 is not listed on IDEAS
    2. Hui Wang & Keke Sun & Shu Xu, 2023. "Does Housing Boom Boost Corporate Financialization?—Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(6), pages 1655-1667, May.
    3. Nam Hoai Tran & Chi Dat Le, 2017. "Financial conditions and corporate investment: evidence from Vietnam," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 29(2), pages 183-203, April.
    4. Liu, Yongjiu & Liu, Junyan & Dong, Peiling, 2023. "VAT rate cut and enterprise deleveraging: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1254-1266.
    5. Yuyu Wu & Sihao Li & Zhi Cao, 2022. "The effect of financialization on management earnings forecasts," Applied Economics Letters, Taylor & Francis Journals, vol. 29(16), pages 1466-1469, September.
    6. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    7. Guan Ping Zhu & He Fa Gui & Tao Peng & Chong Hui Jiang, 2023. "Corporate tax avoidance and corporate financialization: The moderating effect of managerial myopia," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 459-472, January.
    8. Valérie Revest & Alessandro Sapio, 2013. "Does the alternative investment market nurture firm growth? A comparison between listed and private companies," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(4), pages 953-979, August.
    9. Shuxia Zhang & Xiangyang Yin & Liping Xu & Ziyu Li & Deyue Kong, 2022. "Effect of Environmental, Social, and Governance Performance on Corporate Financialization: Evidence from China," Sustainability, MDPI, vol. 14(17), pages 1-20, August.
    10. Auerbach, Alan J. & Hassett, Kevin, 1992. "Tax policy and business fixed investment in the United States," Journal of Public Economics, Elsevier, vol. 47(2), pages 141-170, March.
    11. Hager, Sandy Brian & Baines, Joseph, 2020. "The Tax Advantage of Big Business: How the Structure of Corporate Taxation Fuels Concentration and Inequality," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Online Fi, pages 1-31.
    12. Schmitt, Noemi & Westerhoff, Frank, 2018. "Evolutionary Competition And Profit Taxes: Market Stability Versus Tax Burden," Macroeconomic Dynamics, Cambridge University Press, vol. 22(8), pages 2007-2031, December.
    13. Thomas Palley, 2021. "Financialization revisited: the economics and political economy of the vampire squid economy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 9(4), pages 461–492-4, October.
    14. Roberto Veneziani & Luca Zamparelli & Leila E. Davis, 2017. "Financialization And Investment: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1332-1358, December.
    15. Lan Tao & Lianfang Chen & Kun Li, 2021. "Corporate Financialization, Financing Constraints, and Environmental Investment," Sustainability, MDPI, vol. 13(24), pages 1-17, December.
    16. Sandy Brian Hager & Joseph Baines, 2020. "The Tax Advantage of Big Business: How the Structure of Corporate Taxation Fuels Concentration and Inequality," Politics & Society, , vol. 48(2), pages 275-305, June.
    17. Jinghua Wang & Ning Mao, 2022. "Does Financialization of Non-Financial Corporations Promote or Prohibit Corporate Risk-Taking?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(7), pages 1913-1924, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tang, Ye, 2025. "Private economy development, enterprises financialization, and total factor productivity of enterprises," International Review of Economics & Finance, Elsevier, vol. 97(C).

    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. Sebastian Eichfelder & Kerstin Schneider, 2014. "Tax Incentives and Business Investment: Evidence from German Bonus Depreciation," CESifo Working Paper Series 4805, CESifo.
    2. Matthew Rochat, 2023. "The determinants of growing economic inequality within advanced democracies," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 70(4), pages 457-475, December.
    3. Eichfelder, Sebastian & Knaisch, Jonas David & Schneider, Kerstin, 2025. "Bonus depreciation as instrument for structural economic policy: Effects on investment and asset structure," arqus Discussion Papers in Quantitative Tax Research 288, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. Nguyen, Hang T. T., 2024. "Corporate taxation and total factor productivity: Evidence on a non-linear relationship," arqus Discussion Papers in Quantitative Tax Research 284, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Qinglan Wu & Guifu Chen & Jing Han & Liyan Wu, 2022. "Does Corporate ESG Performance Improve Export Intensity? Evidence from Chinese Listed Firms," Sustainability, MDPI, vol. 14(20), pages 1-16, October.
    6. Tristan Auvray & Cédric Durand & Joel Rabinovich & Cecilia Rikap, 2021. "Corporate financialization’s conservation and transformation: from Mark I to Mark II," Review of Evolutionary Political Economy, Springer, vol. 2(3), pages 431-457, December.
    7. Bichler, Shimshon & Nitzan, Jonathan, 2020. "Growing through Sabotage: Energizing Hierarchical Power," Review of Capital as Power, Capital As Power - Toward a New Cosmology of Capitalism, vol. 1(5), pages 1-78.
    8. Yang Guo & Dongliang Kang & Chengyin Huang & Ying Chen, 2023. "Why do sports goods manufacturers choose different corporate social responsibility engagements?," PLOS ONE, Public Library of Science, vol. 18(12), pages 1-24, December.
    9. Tori, Daniele & Onaran, Özlem, 2018. "Financialisation, financial development, and investment: evidence from European non-financial corporations," Greenwich Papers in Political Economy 22196, University of Greenwich, Greenwich Political Economy Research Centre.
    10. Tristan Auvray & Cédric Durand & Joel Rabinovich & Cecilia Rikap, 2020. "Financialization's conservation and transformation: from Mark I to Mark II," Working Papers hal-03079425, HAL.
    11. Hager, Sandy Brian & Baines, Joseph, 2023. "Does the US Tax Code Encourage Market Concentration? An Empirical Analysis of the Effect of the Corporate Tax Structure on Profit Shares and Shareholder Payouts," EconStor Preprints 280835, ZBW - Leibniz Information Centre for Economics.
    12. Xuefeng Shao & Longqi Wang & Xinda Li, 2024. "Financial asset allocations, economic policy uncertainty, and enterprise digital transformation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(4), pages 2613-2626, June.
    13. Hines, James R. & Park, Jongsang, 2019. "Investment ramifications of distortionary tax subsidies," Journal of Public Economics, Elsevier, vol. 172(C), pages 36-51.
    14. Eichfelder, Sebastian & Knaisch, Jonas & Schneider, Kerstin, 2023. "How does bonus depreciation affect real investment? Effect size, asset structure, and tax planning," arqus Discussion Papers in Quantitative Tax Research 278, arqus - Arbeitskreis Quantitative Steuerlehre.
    15. Eichfelder, Sebastian & Schneider, Kerstin, 2018. "How do tax incentives affect business investment? Evidence from German bonus depreciation," arqus Discussion Papers in Quantitative Tax Research 231, arqus - Arbeitskreis Quantitative Steuerlehre.
    16. Baines, Joseph & Brian, Hager Sandy, 2024. "Rentiership and Intellectual Monopoly in Contemporary Capitalism: Conceptual Challenges and Empirical Possibilities," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue OnlineFir, pages 1-29.
    17. Elisa GIULIANI, 2020. "Putting human rights into regional growth agendas: Where we stand and where we ought to go," Papers in Evolutionary Economic Geography (PEEG) 2042, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Sep 2020.
    18. Baines, Joseph & Hager, Sandy Brian, 2021. "The Great Debt Divergence and its Implications for the Covid-19 Crisis: Mapping Corporate Leverage as Power," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Latest Ar.
    19. Du, Pengcheng & Zheng, Yi & Wang, Shuxun, 2022. "The minimum wage and the financialization of firms: Evidence from China," China Economic Review, Elsevier, vol. 76(C).
    20. repec:hal:cepnwp:hal-03079425 is not listed on IDEAS
    21. Jin, Xiao Meng & Mai, Yong & Cheung, Adrian Wai Kong, 2022. "Corporate financialization and fixed investment rate: Evidence from China," Finance Research Letters, Elsevier, vol. 48(C).

    More about this item

    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:plo:pone00:0293385. 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: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    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.