Financing constraints,business environment and cor

Creative Economy
2022,VOL.6,NO.2,52-59
DOI:10.47297/wspceWSP2516-251905.20220602
Financing Constraints,Business Environment and Corporate Tax Avoidance
Mengjie Gao,Hao Zhu,Jinxiu Wang
Business School Foshan University,Foshan Guangdong528000,P.R.China
ABSTRACT
With the global spread of the COVID-19pandemic,the economy of the
world generally continues to decline.Macroeconomic uncertainty is
increasing,and the external financing environment of enterprises is not
good.Tax avoidance,as an alternative financing method to alleviate the
tight internal cash flow of enterprises,can help enterprises reduce cash
expenditure.At the same time,China has always attached great
importance to the construction of business environment.The motivation
of radical tax avoidance of financing constrained enterprises may be
moderated by the business environment.In view of this,this paper selects
A-share listed companies in China from2011to2020as the research
sample and the empirical results show that there is a significant positive
correlation between financing constraints and corporate tax avoidance,
and business environment has an inhibitory effect on the relationship
between financing constraints and corporate tax avoidance.
KEYWORDS
Financing constraints;Business environment;Corporate tax avoidance;
Moderating effect
1Introduction
Financing constraint is a severe test faced by many enterprises in China.At present,China's financial market structure is not reasonable enough,and bank credit is the main way of financing for enterprises.When the external financing environment is not good,enterprises usually prefer to accumulate funds through internal financing channels.Ye Kangtao and Liu Xing[1]proposed that tax avoidance can be regarded as an effective alternative to other financing methodst.It can be seen that financing constraints may become an internal driving force for corporate tax avoidance,and may induce radical tax avoidance behavior.
Premier Li Keqiang of the State Council implemented the Regulations on Optimizing the Business Environment from2020,to further improve the business environment.At present,there is no relevant research on how to effectively control the tax avoidance behavior of enterprises facing financing difficulties.Therefore,it is worth further exploring whether the decision of tax avoidance will be affected by the business environment when enterprises face financing constraints.
The main contributions of this paper are as follows:Firstly,the economic impact of financing constraints is discussed in depth.Secondly,this paper expands the research perspective of the impact of financing constraints on corporate tax avoidance behavior,considering the heterogeneous impact of business environment,and finally confirms that better business environment can inhibit the impact of financing.
Creative Economy
53 2Literature review,theoretical analysis and research hypothesis
2.1Literature review
From the perspective of the influencing factors of financing constraints,information asymmetry is the primary inducement of financing constraints.Myers and Mailuf[2]found that financing constraints faced by the companies will deepen with the increase of information asymmetry.From the perspective of the economic consequences of financing constraints,Fazzari et al.[3]believes that due to financing constraints,the company's investment level is lower than the best state.
As for the influencing factors of tax avoidance,many scholars study how management affects corporate tax avoidance from the perspective of principal-agent.Dai Bin et al.[4]found that the gender of management has a certain impact on the company's tax avoidance w and Mills[5]found that corporate managers with military experience were more disciplined and less aggressive in tax avoidance.
With regard to the economic consequences of corporate tax avoidance,Chen and Chu[6]believe that if a company implements tax avoidance,it will not only damage the reputation of the company, but also be punished by the tax authorities and increase the risk of management.It is difficult for the management to compensate for this part of the risk within the company,which weakens the incentive and restraint effect of the compensation contract and reduces the investment efficiency of the company.
As for the research on financing constraints,most of the existing literatures mainly focus on the relationship between financial background,financial development,capital holdings and financing constraints.In order to fill the gaps in the existing research,this paper will explore the relationship between financing constraints and corporate tax avoidance,and further study whether business environment can play a moderating role in the relationship between the two.
2.2Theoretical analysis and research hypothesis
2.2.1The relationship between financing constraints and tax avoidance
The theory of information asymmetry refers to the fact that the party who knows more and higher quality information is in an advantageous position and can selectively transmit information to obtain greater benefits.Therefore,the cost of external financing is higher than that of internal financing,and external financing can not replace internal financing.
Companies with financing constraints need to bear greater market friction costs,and the use of internal capital flows can reduce the cost of market friction.Therefore,financing constraints will lead companies to choose internal financing.Tax avoidance is a means to increase the company's internal cash flow.According to the above,tax avoidance is a kind of endogenous financing behavior. Companies with financing constraints will show a significant tendency of tax avoidance.According to this,we propose hypothesis1:
Hypothesis1:The higher the degree of financing constraints faced by enterprises,the higher the degree of tax avoidance.
2.2.2The moderating role of the business environment
The new institutional economics mainly includes transaction cost theory,property rights theory and so on.Coase[7]proposed the concept of transaction cost,which is defined as the cost paid by the production organization in the market transaction.Transaction cost theory expands the extension of this concept and points out that hidden cost is also a part of it.
Among the business environment indicators,the government's administrative approval of
Mengjie Gao et al enterprises,industry access intervention and other secondary indicators reflect transaction costs, which can reduce social costs and optimize the allocation of resources.Therefore,a good business environment can gradually improve the administrative efficiency of governments,reduce institutional transaction costs,so that enterprises reduce the motivation of radical tax avoidance.
Based on the above,this paper puts forward hypothesis2:
Hypothesis2:When the business environment is better,the positive impact of financing constraints on corporate tax avoidance will be suppressed.
3Research design
3.1Sample selection and data sources
This paper takes the annual data of China's A-share listed companies from2011to2020as the sample.In order to fit this study,the data are processed as follows:(1)excluding financial companies;(2)excluding ST and ST*companies;(3)excluding companies with missing key financial data in the past ten years.After the above screening,2010sample data were finally obtained.
In order to eliminate the influence of extreme values on the results of the study,Winsorize tail-shortening treatment was carried out on all continuous variables at1%and99%quantiles.The data of this paper are from CSMAR database and WIND database,and the data of business environment are from China's Provincial Marketization Index Report(2016)compiled by Fan Gang and Wang Xiaolu.Stata16is used for data processing and analysis.
3.2Variable definition
3.2.1Explained variable
This paper refers to the practice of Li Chenying and uses the tax difference method to measure tax avoidance.The calculation formula is:
BTD=(pretax accounting profit–taxable income)
total assets at the end of the period
(1)
Taxable income=(income tax expense–deferred income tax expense)
nominal income tax rate
(2)
3.2.2Explanatory variable
We refer to the practice of Deng Kebin to measure the degree of enterprise financing constraint with SA index.The calculation method is as follows:
SA=-0.737×Size+0.043×Size2-0.040×Age(3)
3.2.3Moderating variable
Referring to the treatment method of Yu Hongmei et al.,this paper uses the average growth rate to estimate the lack of annual business environment index.This paper refers to the practice of Wang, H and Qian,C,the area larger than the national median is the area with higher marketization process,and the value is1,otherwise it is0.
3.2.4Control variable
This paper selects enterprise size,asset-liability ratio,growth ability,period cost rate and executive compensation as the control variables of this study.Finally,the industry and the year are 54
Creative Economy also controlled.
3.3Model construction
According to the hypothesis 1proposed in this paper,the model (3)is constructed:
BTD =α0+α1SA +α2Size +α3Growth +α4Lev +α5Sale +α6Comp +ΣYear +ΣInd +ε
(4)
According to the hypothesis 2proposed in this paper,the model (4)is constructed:
BTD =β0+β1SA +β2SA∙BE +β3BE +β4Size +β5Growth +β6Lev +β7Sale +β8Comp +ΣYear +ΣInd +φ(5)
4
Empirical results and analysis
4.1
Descriptive statistics
According to the regression model,we have conducted descriptive statistics on the variables in the model.The specific results are shown in Table2:
It can be seen from Table 5-2that the standard deviation of the degree of tax avoidance (BTD),is 0.024,the minimum value is -0.066,and the maximum value is 0.073,indicating that the level of tax avoidance of different enterprises is quite different.The average value of SA is 3.721,the standard deviation is 0.34,which indicates that the existence of financing constraints has become a common phenomenon.The adjustment variable is the business environment (BE),with an average value of 0.875,indicating that the business environment of 87.5%of enterprises is higher than the average business environment.
Tab.1Variable names and definitions
Variable type Explained variable Explanatory variable Moderating variable
Control vari‐
able
Variable name Degree of tax avoidance Financing con‐
straints Business envi‐ronment Enterprise scale Ability to grow Asset-liability ra‐
tio Period expense
rate Executive com‐pensation Industry Year
Variable symbol BTD SA
BE
Size Growth Lev Sale Comp Ind Year
Variable definition
The larger the value,the more intense the tax avoidance The larger the absolute value is,the more serious the financing con‐
straint is
According to the provincial marketization index compiled by Wang
Xiaolu and others,when the marketization index of the region where
the enterprise is located exceeds the median,the value is 1,
otherwise it is 0.
Natural logarithm of total assets at the end of the year (Operating income of current year-operating income of last year)/
operating income of last year Total liabilities/total assets Period expenses/sales income
Natural logarithm of total annual salary of senior executives China Securities Regulatory Commission 2012Industry Classification
Annual dummy variable
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4.2Correlation analysis
Correlation coefficients of main variables are shown in Table3below:
It can be seen from Table 5-3that the correlation coefficient between the degree of tax avoidance (BTD)and financing constraints (SA)is 0.110,which shows a positive correlation at the significance level of 1%,indicating that the higher the degree of financing constraints,the more likely enterprises are to engage in tax avoidance activities,that is,hypothesis 1has been preliminarily verified.
The correlation coefficients between all variables are less than 0.6.Therefore,when these variables are introduced into model (1)and model (2)respectively,the multicollinearity of the model does not need to be considered.
4.3Regression analysis
Firstly,regression analysis is conducted on financing constraints and corporate tax avoidance.In order to test the change of the relationship between financing constraints and corporate tax avoidance under the influence of business environment,the interaction between financing constraints and business environment is added for regression.
Table4shows the regression results of financing constraints and corporate tax avoidance.It can be seen from the table that there is a significant positive correlation between financing constraints (SA)and tax avoidance degree (BTD)at the 1%level,indicating that the more serious the financing constraints faced by enterprises,the higher the tax avoidance degree,which verifies the hypothesis 1of this paper.
The coefficient of financing constraints (SA)is significantly positive,and the coefficient of the interaction between financing constraints and business environment (SA _BE)is significantly negative at the 5%level,which verifies the hypothesis 2of this paper.
Tab.2Descriptive Statistical Results
Variables BTD SA BE Size Lev Growth Sale Comp
Mean value 0.00043.7210.87523.530.4870.2960.14415.74
Standard deviation
0.0240.3400.3311.5200.1850.6790.1030.784
Minimum value
-0.0662.368020.720.087-0.5140.01813.99
Maximum value
0.0734.347128.000.8433.8110.54517.80
Sample size 22102210221022102210221022102210
Tab.3Correlation coefficient
Variables BTD SA BE Size Lev Growth Sale Comp
BTD
10.110***-0.0220.026-0.160***-0.056***0.055**-0.007
SA
1-0.002-0.493***-0.163***-0.0290.163***-0.129***
BE
10.059***0.040*0.082***-0.0140.094***
Size
10.558***0.127***-0.292***0.501***
Lev
10.238***-0.362***0.295***
Growth
1-0.058***0.117***
Sale
1-0.020
Comp
1
***p <0.01,**p <0.05,*p <0.1.
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Creative Economy 4.4Robustness test
In order to make the above conclusion more reliable,this paper carries out the following
Tab.4Financing constraints and corporate tax avoidance Variables SA Size Lev Growth Sale Comp _cons industry year N Adj-R
2
BTD 0.017***(9.20)0.007***(11.56)-0.047***(-12.77)0.0004(0.54)0.012**(2.25)-0.0005(-0.61)-0.171***(-9.54)control control 22100.211
***p<0.01,**p<0.05,*p<0.1,t-value in brackets.
Tab.5Financing constraints,business environment and corporate tax avoidance
Variables SA SA_BE BE Size Lev Growth Sale Comp _cons industry year N Adj-R
2
BTD 0.018***(9.36)-0.014**(-2.48)-0.002(-1.20)0.006***(11.19)-0.047***(-12.77)0.0004(0.52)0.011*(1.93)-0.0003(-0.39)-0.168***(-9.39)control control 22100.214
***p<0.01,**p<0.05,*p<0.1,t-value in brackets.
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robustness test:for the explained variable corporate tax avoidance,using the difference between the nominal income tax rate and the actual income tax rate (RATE _diff).On this basis,the empirical results are basically unchanged,indicating that the conclusions of this study are relatively robust.
5
Research conclusions and policy recommendations
5.1
Research conclusion
This paper draws the following conclusions:
Firstly,the intensification of financing constraints will promote enterprises to implement more aggressive tax avoidance behavior,and there is a positive correlation between them.Secondly,the business environment plays a regulatory role in the relationship between financing constraints and corporate tax avoidance,and a good business environment can reduce corporate tax avoidance caused by financing constraints.
5.2Policy recommendations 5.2.1
Government level
Firstly,the government need to create a fair,efficient and orderly business environment.Secondly,tax authorities should strengthen the inspection of tax avoidance.
Tab.6Regression Results after Changing the Tax Avoidance Index
Variables SA SA_BE BE Size Lev Growth Sale Comp _cons industry year N Adj-R
2
Rate_Diff 0.030***(4.74)
0.015***(7.94)-0.113***(-9.32)0.001(0.29)0.064***(3.33)-0.002(-0.81)-0.256***(-4.30)control control 22100.162
Rate_Diff 0.031***(4.90)-0.042**(-2.31)-0.004(-0.87)
0.015***(7.61)-0.113***(-9.30)0.001(0.26)0.059***(3.25)-0.002(-0.63)-0.249***(-4.17)control control 22100.165
***p<0.01,**p<0.05,*p<0.1,t-value in brackets.
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5.2.2Listed company level
Firstly,improve internal cash flow management and broaden external financing channels.Cash flow is the lifeline of enterprise development.Secondly,enhance corporate social responsibility and consciously pay taxes in good faith.
About the Author
Mengjie Gao,lecturer,doctoral degree,research direction:corporate governance and financial man‐agement.
Hao Zhu,bachelor degree,research direction:financial management.
Jinxiu Wang,bachelor degree,research direction:financial management.
Funding
2022Foshan Social Science Project“Research on the implementation effect and countermeasures of employee stock ownership plan in Foshan high-tech enterprises”
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