NTB-LTB Merger Reform, Tax Burden and Corporate Response—Based on the Cash Holding Perspective

Assessing the micro-economic effects of the merger of National Tax Bureaus (NTB)—Local Tax Bureaus (LTB) don’t only contributes to the full implementation of various corporate tax preferential policies, but also has important significance for establishing and improving the tax management structure under the modern taxation governance system. We regard the NTB-LTB merger reform as a “quasi-natural experiment”, and use the difference in difference method to examine its impact on corporate behavior. The results show that after the NTB-LTB merger reform, the firms’ preventive savings motives strengths, so they hold more cash assets. The reason is that the NTB-LTB merger reform increases firms’ tax burden. The analysis of heterogeneity finds that the impact of the NTB-LTB merger reform on cash holdings will be different due to differences in firms’ internal characteristics and the external environment. Specifically, this effect is more prominent in firm with severe financing constraints, weak profitability, and facing poor tax collection environments. In addition, we also find that in order to alleviate the financial pressure caused by the increase in tax burden, after the NTB-LTB merger reform, enterprises will reduce investment expenditure and employment expenditure on the one hand, and increase commercial credit financing on the other hand. The conclusion of this paper indicates that while improving the tax collection system to regulate corporate taxation behavior, government need to pay special attention to the financial pressure that tax burdens bring to firms to avoid hindering the long-term development of enterprises.