Sponsor(s): Shanghai University of Finance and Economics
12 issues per year
Current Issue: Issue 03, 2018
Journal of Finance and Economics is supervised by Ministry of Education of PRC, and sponsored by Shanghai University of Finance and Economics. It aims to include research results on the major theories and practical problems in China’s reform and opening up and modernization of economic construction. Its scope covers all the major fields of Economics, including Public Economy, Finance, Accounting, Economic history, Regional Economics, Industrial Economics, International Economics. The Journal is included in CSSCI.
The effect of “replacing business tax with VAT” on the independent innovation of manufacturing enterprises: with some implications for technical introduction of manufacturing enterprises
Journal of Finance and Economics,2018,Vol 44,No. 03
“Replacing business tax with value-added tax (VAT)” policy opens up the VAT deduction chain, not only impacting enterprises’ tax burden, but also changing the behavior of enterprises. Innovation is the key to national economic growth. The empirical research on “replacing business tax with VAT” affecting enterprise innovation behavior is of great research significance. Based on the sample of manufacturing listed companies in A-share markets of Shanghai and Shenzhen from 2008 to 2013, this paper uses difference-in-differences (DID) method to study the impact and action mechanism of “replacing business tax with VAT” policy on independent innovation of Chinese manufacturing enterprises. Research shows that the “replacing business tax with VAT” policy can reduce the willingness to do independent innovation characterized by patent in manufacturing enterprises by promoting specialized division of labor. Further analysis shows that the reduction in the willingness to do independent innovation has not affected the profitability and enterprise value of manufacturing enterprises. Although the “replacing business tax with VAT” reduces enterprises’ willingness to do independent innovation, it also improves the level of technical introduction of enterprise. The main contributions of this paper are as follows: firstly, it makes up the empirical research gap of the effect of “replacing business tax with VAT” policy on independent innovation and provides a new perspective for the study of the policy effect; secondly, it has important policy implications for the selection of innovation mode of manufacturing enterprises and the formulation of government industrial policy.
Four trillion yuan stimulus package and firm leverage: empirical test from Chinese double levels samples
Journal of Finance and Economics,2018,Vol 44,No. 03
In 2008, the Chinese government has promulgated a package of “reverse economic cycles” based on the “four trillion yuan” stimulus package, in order to resist the strong impact of international financial crisis on the Chinese economy. From the perspective of the implementation of this plan, it has two distinct characteristics. On the one hand, it focuses on major infrastructure, affordable housing, disaster recovery and reconstruction, independent innovation and structural adjustment, livelihood projects, energy conservation and emission reduction and ecological engineering as well as social cultural industries and other related industries and enterprises. On the other hand, they are inclined to industries and enterprises associated with the disadvantaged groups in the central and western regions of China. After the stimulus package was implemented, it not only quickly got rid of the influence of the global financial crisis and succeeded in achieving rapid growth, but also became the mainstay of promoting the global economy from the doldrums. However, an interesting phenomenon is that while China’s economy is “rapidly recovering from low levels,” Chinese firms’ leverage is not only rising but also showing structural feature at the overall level, becoming one of the main structural factors promoting the rise in the overall social leverage rate. Therefore, the “four trillion yuan” stimulus package injects vitality into the restoration of Chinese economy. However, does it promote the rapid accumulation of the debt level of the whole society, especially the level of indebtedness of enterprises and local governments? The nearly simultaneous historical events of “four trillion yuan” stimulus package and rising Chinese firms’ leverage during the financial crisis provide a quasi-natural experiment for the study on the factors influencing the Chinese firms’ leverage. At the same time, there are key industries and regions of “four trillion yuan” stimulus package, but China is in a special phase of economic restructuring and covers two heterogeneous micro-entities, namely state-owned and non-state-owned enterprises, also providing a good sample for further tracing the source of “high leverage” in Chinese enterprises and the structural changes in leverage ratio among heterogeneous firms in different industries. Through this study, we not only try to enrich the study of the effect of “4 trillion yuan” stimulus package at the micro-enterprise level and provide experience for the macro-policy practice of future economic development, but also enhance the exploration of origin and antecedents of “high leverage” at the macro-policy level, which provides empirical evidence for the direction and focus of “deleveraging.” For this reason, this paper regards the “four trillion yuan” stimulus package as a quasi-natural experiment, select the sample data of Chinese listed companies from 2005 to 2012 by using the method of double difference estimation to explore the overall impact of the “four trillion yuan” stimulus package on the leverage ratio of listed companies in key industries and regions, and examines whether there is a significant difference in the leverage ratio between listed enterprises in key industries and those in non-key industries. Then, after considering that the implementation of this plan is more likely to be in the central and western regions, it is probable that whether the “four trillion yuan” stimulus package produces a relatively significant difference between the leverage ratios of listed enterprises in key industries and one in non-key industries in different regions. Furthermore, since China has a large number of non-listed enterprises, the data limited to the level of non-listed enterprises are not complete enough within the sample year, so that it exists some evaluation deviation on the impact of the “four trillion yuan” stimulus package on the firms’ leverage. Therefore, this paper continues to extend the research ideas of listed enterprises sample, and further uses the sample of state-owned enterprises to examine the impact of “four trillion yuan” stimulus package on the leverage, so the results of two sets of samples of listed enterprises and state-owned enterprises become a mutual evidence. From the microcosmic consequences of the implementation of “four trillion yuan” stimulus package, this paper explores the reason for “high leverage” and the structural changes in leverage of heterogeneous firms from different industries. The results of this paper show that, on the one hand, using two sets of sample data from the Chinese listed enterprises and state-owned enterprises as proof of each other, the “four trillion yuan” stimulus package significantly increases the firms’ leverage of the industry-focused program in these key industries; on the other hand, the empirical results of the two sets of companies complement each other, indicating that, in the long run, although the plan has significantly increased the leverage ratio of listed enterprises in the key industries of eastern region, it also raises the leverage of state-owned enterprises in key industries in central and western regions, especially the non-listed state-owned enterprises in central and western regions. Therefore, this paper argues that, in the direction of “deleveraging,” the decision-making bodies should give priority to lowering the firms’ leverage of the non-listed state-owned enterprises which focus on the key industry in implementing the “four trillion yuan” stimulus package, especially those in the central and western regions by the end of 2008. On the one hand, the governments can both broaden the financing channels by speeding up the examination and approval of state-owned enterprises, improve the proportion of direct financing by enterprises in the capital market using stocks and other means, speed up the marketization reform in the central and western regions, perfect the multi-level capital market, and establish a diversified financing channels for non-listed state-owned enterprises in the central and western regions, in order to gradually absorb part of the debt pressure of these enterprises. On the other hand, the governments should continue to reduce the burden on state-owned enterprises, especially those non-listed state-owned enterprises in the central and western regions, and encourage these enterprises to improve their profitability and operating performance so as to make the state-owned capital more optimized, and resolve the risk of “high leverage” by preserving and increasing the value of state-owned assets.
Journal of Finance and Economics,2018,Vol 44,No. 03
A series of populism activities, such as the Swiss referendum, the Greek debt referendum, and the Brexit vote, have been taken place in European since 2013, which means that European civilians fight against the elite’s suppression. In 2016, Trump was elected as the President of the United States, which also means his populism, exclusion ideas and trade protection ideas were supported by voters. In the context of global anti-integration and trade protectionism, what road could Chinese enterprises choose to develop? In 2016, at the G20 Summit in Hangzhou, President Xi Jinping called for pushing for opening up, breaking trade barriers and building a more dynamic world economy. Only by participating in the global trade and trade competition with an open mind can we deepen our cooperation and seek win-win results. Now, China’s economy has entered into a new normal of slowing GDP growth, showing an “L”-shaped growth. In the face of the economy downward pressure and the “post-crisis era” of the world economy, President Xi Jinping has pointed out that the key solution depends on innovation. He also called at the G20 summit to build an open world economy and continue to promote the liberalization of trade and investment. Thus, the discussion about the impacts of trade liberalization and trade competition on enterprise innovation can answer the question about how to choose between trade protection and open competition, and help find ways to promote the innovation of Chinese enterprises, which is of important policy implications and practical significance. The literature of trade liberalization and enterprise innovation is abundant. Many studies outside China focused on how external shocks like foreign trade reform affect total factor productivity (TFP) and product upgrading in developing countries (Amiti and Khandelwal, 2013; Anh et al., 2011; Topalova and Khandelwal, 2011). However, the huge differences in political systems and the use of different indicators to measure enterprise innovation lead to inconsistent conclusions. Researchers in China examined the impact of import penetration, intermediate tariffs and trade barriers on corporate TFP or research and development (R&D) investment. They considered that the escape competition effect of trade liberalization encourages local enterprises to innovate (Jian et al., 2014), and international interaction, namely, entry and exit, enables exporters to gain important new knowledge through the “learning-by-exporting effect” and innovative benefits from imitation (Tian and Yu, 2014; Yu, 2010). Most literature in China used TFP to measure enterprise innovation, but there is a bias in TFP in imperfect competition markets (Aghion et al., 2005). Moreover, studies on the competition effect of trade liberalization lacked further investigation into the moderating role of competition effect. On account of these, this paper attempted to analyze and examine the impacts of trade protection and open competition on enterprise innovation from the perspective of enterprise patent application, which has important theoretical and academic significance. In 2001, China formally acceded to the World Trade Organization (WTO) and began to fulfill its obligation of reducing tariffs as a member state. Tariff reduction weakens import barriers, promotes trade liberalization, increases import penetration and brings more foreign competition to the domestic market (Bloom et al., 2016; Lu and Yu, 2015), thus affecting the innovation of domestic enterprises. Most existing literature on the relationship between market competition and innovation used patents to measure innovation (Aghion et al., 2005; Hashmi, 2013). On account of this, this paper took tariff reduction after China’s accession to WTO as an entry point, and used the data of Chinese manufacturing tariffs from 2001 to 2008, as well as the patent data of listed companies in A-share market, to test that how import competition affects enterprise innovation. This paper found that when tariff reduces, enterprises’ invention patent applications increase significantly, but the total number of patent applications and non-invention patent applications do not increase greatly. Import competition encourages enterprises to carry out high-quality invention. In addition, import competition encourages stimulated high-quality inventions of enterprises which are more vulnerable to competition (such as non-state-owned enterprises and enterprises with high-degree industrial competition). The technological level is the moderating effect of the encouragement of import competition to enterprise innovation. This paper may has several contributions as following: Firstly, unlike market competition indexes measured by endogenous imports or corporate financial data (Bloom et al., 2016; Zhang et al., 2014), this paper used quasinatural experiment of tariff reduction after WTO to examine the effect of import competition from the perspective of micro-enterprise innovation, which can effectively alleviate the endogeneity problem and enhance the credibility of conclusions; secondly, combining the background of the economic system in the transition period of China, this paper studied the impact of import competition on Chinese enterprise innovation, which can be a useful supplement to the study of trade liberalization and enterprise innovation in emerging market countries and developing countries; further examining the moderating effect of import competition helps clarify the reasons for the effect of market environment on the micro-enterprise behavior; thirdly, it subdivided import competition from market competition, which provides extra support for most of the current literature that only focused on market competition and innovation; fourthly, the use of patents to measure innovation is consistent with literature outside China on market competition and innovation, and can better define innovation motivation and quality of innovation (Tong et al., 2014), and can help solve the problem of using TFP that may have biases in imperfect competition market.
Journal of Finance and Economics,2018,Vol 44,No. 03
Although the service industry in China booms up relatively late, it shows a strong momentum of growth recently. China’s service industry accounted for more than 40% of GDP in 2000. As most developed countries including America and Japan have experienced, China’s industrial structure is now showing a tendency of transformation from “industry-based economy” to “service-oriented economy,” facing the challenge of industrial hollowing-out. Will the development of the service industry damage China’s exports? Data show a high degree of consistency between the expansion of China’s exports and the development of service industry from the trend perspective, even after the service industry accounted for more than 40% of GDP. Therefore, the relationship between the development of service industry, its concomitant issue of industrial hollowing-out and export may be complicated and deserves further discussion. Especially against the background of increasing threat of industrial transfer represented by processing trade, this research has strong practical significance. This paper also has obvious policy implications for China’s trade development strategy and the direction of national economic transformation & adjustment. Based on achievements of existing research, this paper attempts to make the marginal contribution in the following two aspects. First of all, on the basis of data concerning the development of service industry at city level, we examine its impact on the export of manufacturing enterprises and depict and verify its influence mechanism at the micro level, which is a useful supplement to the existing theory. Secondly, based on the overall development of local service industry and taking the impact of the processing trade into account, this paper can intuitively reflect the impact of development of service industry on processing trade enterprises and identify the possible trend of industrial transfer, providing empirical evidence for the impact of tertiarization and being of practical significance to China’s industrial policy formulation and foreign trade transformation strategy. Our research shows that on the whole, the development of urban service industry not only enhances the export probability of enterprises, but also promotes the expansion of enterprises’ export volume. The development of urban service industry promotes the export of enterprises mainly through “division-of-labor effect” and restrains the export of enterprises mainly through “wage-premium effect.” We also obtain the following conclusions by expanding the research. Firstly, the development of urban service industry benefits the export of persistent exporters, longer-existing firms and large-scale enterprises, but does damage the export of foreign-funded firms, capital-intensive firms and firms with high level of productivity. Secondly, the export of processing trade enterprises is restrained by the development level of urban service industry. Thirdly, after excluding the processing trade enterprises, the export of capital-intensive enterprises and high productivity enterprises can also benefit from the development of urban service industry. Based on our conclusion, the following three policy implications can be obtained. Firstly, we should take a correct view of development of service industry and the threat of industrial hollowing-out. The tertiarization helps to improve the overall level of national economy and bring about higher efficiency. Secondly, as the transition period of “service-oriented economy” approaches, the government should pay more attention to new industries and promote the timely replacement of the old industries by the new ones, instead of blindly supporting the old industries. Thirdly, in order to promote the transformation and upgrading of local processing trade enterprises, we should seek a linkage mechanism between the development of service industry and the transformation and upgrading of processing trade enterprises. On the one hand, the government can try to promote the servitization process of manufacturing industry; on the other hand, we should promote the service industry to actively embed in the production chain and reduce transaction costs of processing trade enterprises.