Can the Deferred Donation Deduction Policy Promote Corporate Charitable Donations? Empirical Evidence from China

ABSTRACT

This paper uses a sample of Chinese listed companies and adopts the difference-in-difference method to empirically study the impact of China’s deferred tax deduction policy on corporate charitable donations. Overall, it finds that the deferred deduction policy does not increase enterprises’ tendency to donate; instead, it reduces their donation intensity. When we distinguish enterprises by their type of ownership, we see that among non-state-owned enterprises, the deferred deduction policy has significantly increased the tendency to donate and reduced the donation intensity, but its impact on state-owned enterprises is not evident. In addition, this policy has significantly increased small-value donation enterprises’ tendency to donate, but reduced high-tax enterprises’ tendency.

KEYWORDS:

• Corporate charitable donation
• deferred donation deduction policy
• did model

Acknowledgments

The authors would like to thank the editor and the anonymous reviewers for the helpful and constructive feedback, which was instrumental in improving this article. Besides, the authors also thank Yuanyuan Xu from Nanjing University of Finance and Economics for her excellent research assistance.

Notes

1. Two proposals may have some impact on corporate donations in 2013 and 2014. In February 2013, the “Notice of the State Council Approving and Transmitting Several Opinions of the Development and Reform Commission and Other Departments on Deepening the Reform of the Income Distribution System”(State Council [2013] No. 6) stipulates that the tax preferential policy for charitable donations shall be implemented and improved, and the portion of corporate charitable donations exceeding 12% of the total annual profit is allowed to be carried forward and deducted for subsequent years. However, the “Corporate Income Tax Law” was not revised at that time, so this proposal was not really implemented. In December 2014, the State Council issued the “Guiding Opinions of the State Council on Promoting the Healthy Development of Charity” (State Council [2014] No. 61), which stipulates that the portion exceeding 12% shall not be carried forward for deduction in subsequent years.

2. However, we cannot rule out whether it is caused by the selection of the control group, that is, the treatment group and the control group are enterprises with profits greater than 0 and profits less than 0 respectively, and the donation tendency of these two types of enterprises is significantly different. Another parallel trend test is conducted by setting companies which did not make charitable donation with the size of more than 12% of the total annual profit in the previous year and obtain top 10% total profit in current year as the treatment group (Treat=1), while the control group (Treat=0) are companies which did not make charitable donation with the size of more than 12% of the total annual profit in the previous year and do not obtain top 10% total profit in current year. The results are similar with Figures 1 and 2.

3. Kernel matching is used in this study, and it is not a one-to-one matching between individuals. Instead, it simulates a new individual through the existing samples, so as to make full use of the existing information under the condition of unfaithfulness when the size of sample is relatively small.

Additional information

Funding

This research is supported by National Natural Science Foundation of China (Grant No. 71902082; 71672082) and Humanities and Social Science Fund of Ministry of Education of the People’s Republic of China (Grant No.16YJC630090).