Effect of Tax Rate Cut on Financial Performance of Electronic Firms

Abstract

This study assesses the effect of tax rate cut on the financial performance of Taiwanese-listed firms using data from 2009 to 2012. This study hypothesizes that income tax rate cuts affect financial performance using selected financial ratios as indicators. This study finds that the hypotheses on the Debt-Equity Ratio, Return on Equity, and Return on Invested Capital are supported. However, there is no support for the hypothesis on the Current Ratio, Price-Earnings Ratio, Equity Ratio, and Operating Profit Margin. Using a pooled sample, the capital structure tends to adjust resulting in lower debt and, accordingly, higher equity. In particular, the electronic group reacts differently with a significant and negative relationship between debt-equity ratio and tax, moreover, it finds lower production and wages relevant.