Determinants of Corporate Effective Tax Rates: Evidence from Listed Companies in China

Abstract

The authors examine what determines corporate effective tax rates (ETR) at the firm level, using the panel data on 425 listed companies in China's stock market over the seven-year period 1998-2004. First they identify some possible determinants of ETR based on theories and firm characteristics in China, including firm size, leverage, asset mix, profitability, ownership structure, and overemployment. Then they conduct quantitative analyses and panel estimations with the randomeffect model. The findings from the empirical results are as follows. The firm size and capital intensity of the listed companies seem to have no significant effects on ETR. The impact of leverage on ETR is negative and significant. ETR tends to be smaller for firms with overemployment of labor, which may be related to incentive policies provided by government to promote employment. Effects of profitability and ownership structure on ETR vary with external tax environments, and they turn out to be positive as all firms enjoy tax incentives.