Tax Incentives and Maturity Mismatch between Investment and Financing: Evidence from China

Abstract

This paper examines the effects of China's accelerated depreciation policy (ADP) on the maturity mismatch between investment and fi nancing. Using panel data for China'sA-share nonfinancial listed companies from 2010 to 2019 and a staggered differencein-differences approach, we found the following. First, ADP significantly aggravated the degree of corporate maturity mismatch, and this result was robust across multiple checks. Second, due to an insufficient long-term loan supply, firms had to finance the fi xed investments induced by ADP with short-term debts, leading to maturity mismatches.Third, the positive policy effects were mainly significant for firms with high policy exposure, high-risk preferences, a high degree of information asymmetry, and fi rms with weak long-term financing capacity. Finally, maturity mismatch exacerbated corporate fi nancial risks. Our research fi ndings indicate that passive maturity mismatch is prevalent among Chinese companies and emphasize the need to address financial repression in order to mitigate the potential fi nancial risks that may arise from tax incentives.

Does Information Exchange Affect Cross‐border Tax Avoidance? Evidence from the Common Reporting Standard

“…This favorable tax treatment has been observed to bolster substantially operational activities, such as investments and workforce expansion, particularly among firms with a commendable history of tax compliance. These advantages of the ADFA policy have been instrumental in mitigating financial constraints and enhancing cash flow dynamics (Fan and Liu, 2020;Zhao and Fang, 2022;Feng et al, 2023). It is essential to note, however, that within the context of our study, the impact of ADFA stood in contrast to that of CRS, given that ADFA engendered an increase in the effective tax rate.…”