This paper examines how ownership type and institutional environment affect firm taxation. Using a sample of Chinese-listed firms from 1999 to 2006, we find that private firms enjoy a lower effective tax rate than local state-owned enterprises. In addition, the preferential taxation of private firms is associated with local government incentives to promote local economic growth. We find that private firms located in regions with a lower level of privatization receive preferential tax treatment. Our results also suggest that decentralization and interjurisdictional competition lead to financial interdependence between local governments and private firms.
This article investigates the determinants of stock market wealth effect across regions. Using panel data from China, we find that the stock market wealth effect is more prevalent in regions with more stockholders, regions in which households have higher levels of stock ownership and regions in which households have lower incomes.
This paper investigates the effect of financial deepening on the relationship between trade credit and cash holdings among Chinese listed firms. We first document an asymmetric effect of trade payables and receivables on cash holdings, in that firms hold an additional $0.71 of cash for every $1 of credit payable but use $1 of receivables as a substitute for only $0.15 of cash. We then find that firms in regions with higher levels of financial deepening hold less cash for payables while substituting more receivables for cash. A more highly developed financial sector helps firms to better use trade credit as a short-term financing instrument. Finally, we find that the ratio at which receivables are substituted for cash increased following the implementation of the new receivables pledge policy in 2007, which allowed firms to use receivables as security for loans. This policy event represents an exogenous shock that mitigates the endogeneity concern.