Abstract

This paper investigates the influence of tax avoidance on capital structure based on share ownership under China’s economic system. Previous research has indicated that tax avoidance exits and has a potential effect on firms’ capital structure, but there is little literature focusing on this influence based on China’s economic system. In light of that, this paper uses A-share data of the Shanghai and Shenzhen stock exchange from 2007 to 2016 as samples to study the impact of tax avoidance on the capital structure based on China’s economic system. The results suggest that, firstly, there is a significant negative correlation between tax avoidance and the debt ratio of the listed companies; secondly, there is a significant difference in the effect of corporate tax avoidance on the debt ratio of different industries and different equity ownership. Besides, by regrouping the samples according to the share ownership and the degree of tax avoidance, it is revealed that China’s unique economic system would lead to an impact of tax avoidance on the capital structure that differs from other countries. Finally, it is found that there is a negative correlation between the degree of tax avoidance of the listed companies and the dynamic adjustment of assets-liability ratio through the extended study, further verifying that there is a substitution relationship between tax avoidance of the listed companies and their debt financing.

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