An Empirical Study on the Endogenous Mechanism of the Investment and Financing Decisionsof Enterprises: from the Perspective of Tax Benefit and Bankruptcy Cost
PENG Cheng 1,2, LIU Yi 1, XIONG Yu 2,3
(1.International Business School, Sichuan International Studies University, Chongqing 400031, China|2.Research Center for International Economy and Business, Chongqing 400031, China|3.Management School, Queen’s University Belfast, Belfast BT7 1NN, UK)
Abstract：
Based on the panel data of 708 Chinese listed firms from 2001 to 2009, the authors empirically analyzed the endogenous mechanism of the investment and financing decisions of enterprises from the perspective of tax benefit and bankruptcy cost. The results reveal that because of tax benefit, debt financing increases investment expenditure and the positive effect will become no more significant when the firm is highly in debt. For the purpose of utilizing the value promotion function of debt interest tax shield, investment will increase the debt financing of enterprises. However because of the high bankruptcy cost in the condition of high debt level, the promotion becomes insignificant|considering the tax shield substitute effect of depreciation, depreciation weakens the promotion effect of investment on debt financing and finally results in the negative correlation between investment expenditure and debt financing in those firms with high depreciation rate
PENG Cheng, LIU Yi , XIONG Yu.An Empirical Study on the Endogenous Mechanism of the Investment and Financing Decisionsof Enterprises: from the Perspective of Tax Benefit and Bankruptcy Cost[J] Economic Survey, 2011,V28(3): 97-102
2011 
