Tax enforcement: incentive or inhibition? Evidence from debt aggressiveness and capital structure in China

Abstract

Purpose

To investigate the impact of tax enforcement on (a) debt aggressiveness (DEA) and (b) dynamic adjustment of capital structure in Chinese listed firms.

Design/methodology/approach

The authors estimate the target capital structure by employing the different models. This study uses data of Chinese A-share listed firms from year 1998 to 2015.

Findings

The study suggests that the greater the intensity of tax enforcement, the more radical the listed companies' debt policy. The macroeconomic status and nature of property rights have significant moderating effect on the positive relationship between tax enforcement and DEA of listed companies. Further, tax enforcement has a significant impact on the dynamic adjustment of capital structure.

Practical implications

Research conclusions are conducive to tax administration departments to understand the economic consequences of tax enforcement and further promote tax administration efficiency. Additionally, listed companies can rationally adjust their capital structure to strengthen tax enforcement.

Originality/value

This research helps extend the influencing factors of corporate debt decision-making and capital structure dynamic adjustment to the level of tax enforcement and provide new evidence on the effects of tax enforcement on corporate capital structure.