Tax Incentive, Cash Flow and the Deviation of Corporate Investment Structure
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| Title | Tax Incentive, Cash Flow and the Deviation of Corporate Investment Structure
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| Author | Fu Wenlin and Zhao Yonghui |
| Organization | Shanghai University of Finance and Economics |
| Email | fu.wenlin@mail.shufe.edu.cn；zyh20052009@163.com |
| Key Words | Tax incentive; Cash flow; Fixed investments; Equity investment; Euler equations for investments |
| Abstract | The virtualization tendency in china economy has developed rapidly in recent years, but the virtual investments grow to excess should not be conducive to the actual production accumulation as well as to increase the risk of macroeconomic fluctuations. In this paper, we build a simple optimal decision-making model based on maximizing shareholders’ interests, and conclude a dynamic Euler investment equation. Using the panel data during 1998-2012 which include two sets of listed companies in Shanghai and Shenzhen, we discuss the problem about deviation of enterprise’s investment structure from the point of view on the tax system and liquidity constraints. We found that there indeed exists the tendency that towards equity in firms’ investment, tax incentives for equity investment significantly greater than fixed assets investment; cash flow could promote equity investment but not in fixed assets; the two factors have significant differences between different ownership enterprises, the privates generally are more sensitive to all exogenous shocks. Our study also found the negative relationship between sales growth and investment which suggests that the acceleration theory cannot explain the realistic options for Chinese enterprises’ investment. |
| Serial Number | WP595 |
| Time | 2014-01-28 |
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