Can value-added tax refund policy alleviate corporate financial distress? Evidence from China

This study examines the impact of the 2018 value-added tax refund policy (VATRP) on corporate financial distress among Chinese listed firms from 2015 to 2021. Utilizing a Difference-in-Differences approach, the analysis reveals that VATRP significantly mitigates corporate financial distress by easing financial constraints and enhancing governance quality. Cross-sectional analysis further indicates that VATRP's benefits are more substantial in firms with advanced digital finance, strong supply chain financing, minimal tax limitations, and in less competitive industries. These findings underscore the efficacy of VATRP in reducing financial distress and offer important implications for refining VAT reforms.