Too far east is west: tax risk, tax reform and investment timing

Abstract

PurposeTax risk refers to the uncertainty of future corporate taxation. Tax reform is a key issue in major current tax system adjustments that seriously affect a firm's tax risk. In response to changes in the economic environment, many countries are actively executing tax reform. Long-term reforms implemented for a smooth transition may instead increase corporate risk. This study examines the relationship among tax risk, tax reform and investment timing.Design/methodology/approachSelecting the Shanghai Stock Exchange and Shenzhen Stock Exchange A-share listed companies' panel data from 2008 to 2017, the paper used survival analysis and the propensity score matching-difference in difference models.FindingsThe results show that a higher corporate tax risk results in more deferred investments, which are further examined using the latest Chinese value-added tax reform as a natural experiment.Originality/valueThe conclusion serves as an important reference for governments to balance reform time and to support enterprises in effectively identifying and managing tax risk under tax reform.