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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2006.10.030 Byline: Liansheng Wu, Heng Yue Keywords: Capital structure; Tax; Bank loans; China Abstract: In this paper, we investigate whether listed firms in China adjust their capital structure in response to an increase in the corporate tax rate. Although theories of capital structure suggest that corporate tax is an important determinant of capital structure, how exogenous changes of the tax rate affect firms' leverage decisions has not been fully explored. We examine a unique circumstance in which the Chinese government increased the corporate tax rate of firms that had previously received local government tax rebates. The evidence indicates that these firms increased their leverage when the corporate tax rate increased. Further investigation suggests that the adjustment of leverage was mostly driven by firms with a high level of access to bank loans. Author Affiliation: Guanghua School of Management, Peking University, Beijing 100871, China Article History: Received 27 March 2006; Accepted 26 October 2006

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2006.12.013 Byline: Yaping Wang, Liansheng Wu, Yunhong Yang Keywords: Firm-level investment; Tobin's Q; Informativeness; Chinese economy Abstract: This paper investigates the empirical relationship between firm-level investment and the stock market in China from a price informativeness perspective. We find that firm investment does not significantly respond to the stock market valuation, because stock prices contain very little extra information about the future operating performance of firms. This finding is further supported by the relative investment response test and the relative price information content test based on the informativeness proxy of price non-synchronicity combined with firm information transparency. Author Affiliation: Guanghua School of Management, Peking University, Beijing 100871, China Article History: Received 2 March 2006; Accepted 18 December 2006