REPLICATION AND EXTENSION
Allocation of internal cash flow when firms pay less tax: The role of state ownership and political connections
Yuqiang Cao,
Xikai Chen,
Meiting Lu,
Yaowen Shan,
Yuqiang Cao
Institute of Studies for the Greater Bay Area, School of Accounting, Guangdong University of Foreign Studies, Guangzhou, Guangdong, China
Search for more papers by this authorCorresponding Author
Xikai Chen
California State University Fresno, Fresno, California, USA
Correspondence
Xikai Chen, Craig School of Business, California State University Fresno, Fresno, CA 93710, USA.
Email: [email protected] and [email protected]
Search for more papers by this authorMeiting Lu
Macquarie University, Sydney, New South Wales, Australia
Search for more papers by this authorYaowen Shan
University of Technology Sydney, Sydney, New South Wales, Australia
Search for more papers by this authorYuqiang Cao,
Xikai Chen,
Meiting Lu,
Yaowen Shan,
Yuqiang Cao
Institute of Studies for the Greater Bay Area, School of Accounting, Guangdong University of Foreign Studies, Guangzhou, Guangdong, China
Search for more papers by this authorCorresponding Author
Xikai Chen
California State University Fresno, Fresno, California, USA
Correspondence
Xikai Chen, Craig School of Business, California State University Fresno, Fresno, CA 93710, USA.
Email: [email protected] and [email protected]
Search for more papers by this authorMeiting Lu
Macquarie University, Sydney, New South Wales, Australia
Search for more papers by this authorYaowen Shan
University of Technology Sydney, Sydney, New South Wales, Australia
Search for more papers by this authorFirst published: 12 January 2025
Abstract
This paper investigates the allocation of internal cash flow among Chinese firms. Compared to their US peers, Chinese firms are less likely to use tax-related cash for investments, particularly in marketable securities, or to increase cash balance; instead, they mainly use tax-related cash to reduce their reliance on external financing. Further tests show the differences in cash allocation between Chinese and US firms are more pronounced among Chinese non-state owned enterprises and firms without political connections. The results highlight the importance of governmental connections in mitigating tax repayment risks and enhancing the flexibility of internal cash allocation.
Open Research
DATA AVAILABILITY STATEMENT
The data that support the findings of this study are available from the corresponding author upon reasonable request.
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