On June 29, 2022, from 20:00 to 22:00 Beijing time, Tony White, editor in chief of the Journal of Financial Economics and a professor of business administration at the University of Michigan, was invited to share his latest research on "Taxes Depress Corporate Borrowing: Evidence from Private Firms". This lecture is the seventh of the second module of the "Editor in Chief Lecture Series" of the 2022 "Editor in Chief Face to Face" conference on economics. It is hosted by the School of Economics and Management of Beijing Jiaotong University, co organized by Elsevier Group and the Economic Management Home Forum, and broadcast online through the Zoom online conference, Bilibili platform, and the video number of Economic Management Home. This lecture is presided over by Associate Professor Xiao Di from the School of Economics and Management at Beijing Jiao Tong University, and invited guest reviewers Liu Xiaolei, a distinguished professor at Peking University's Boya program, and Dai Yun, an associate professor at Sun Yat sen University. The conference attracted 1971 viewers to participate online, including 143 attendees in the Zoom conference room, 1640 viewers on the Management Home video account, and 188 viewers on the Bilibili platform.

Professor Toni White is currently a Dale L. Dykema Professor of Business Administration at the University of Michigan. She obtained a Ph.D. in Economics from Princeton University in 1990 and collaborated with Ben Bernanke. She served as the Chairman of the Western Finance Association and is currently the Editor in Chief of the Journal of Financial Economics, the top journal of financial economics. Professor White has published over 40 articles in top economic and financial journals. Her research covers topics such as the impact of financial frictions on corporate investment, econometric solutions to measurement errors, corporate cash policies, structural estimation of dynamic models, and monetary policy. She won the Jensen Prize for publishing top tier articles in the corporate finance direction in the Journal of Financial Economics, and twice won the Brattle Prize for publishing top tier articles in the corporate finance direction in the Journal of Financial Economics.

In this lecture, Professor Toni White conducted an academic sharing under the theme of "Taxes Depress Corporate Borrowing: Evidence from Private Firms". The lecture starts from a classic question: Does taxation increase or decrease the leverage ratio of enterprises? An intriguing narrative on how to use changes in state level corporate income tax rates to re-examine the relationship between taxation and corporate leverage. Contrary to previous research, Professor Toni White's research has shown that the increase in corporate leverage after tax cuts mainly targets small private enterprises, but has a smaller impact on the level of leverage of large enterprises. Furthermore, Professor Toni White used an estimated dynamic equilibrium model to simulate various shocks, indicating that tax reductions lead to higher default thresholds, thereby reducing credit interest spreads, which exceed the losses caused by tax interest reductions and lead to higher optimal leverage levels for businesses. The above conclusion is particularly evident for enterprises with strict default conditions, such as small private enterprises, while the leverage ratio of large private enterprises does not change due to tax legislation. Finally, Professor Toni White used panel models at the fixed company and year levels to empirically estimate the curvature of the production function, standard deviation of impact, asset depreciation rate, capital adjustment cost, and fixed operating cost in the dynamic equilibrium model using data from private enterprises with asset sizes of over $1 million and persistent existence from 2011 to 2017 as samples, confirming the correctness of the above analysis.

Subsequently, Professor Boya of Peking University, Director of the Department of Finance at Guanghua School of Management, Professor Liu Xiaolei of the Department of Finance and Accounting, and Associate Professor Dai Yun of Finance at Lingnan College of Sun Yat sen University gave comments. Professor Liu Xiaolei from Peking University expressed appreciation for Professor Toni White's innovative research in the field of taxation, indicating that previous studies have mainly studied the cost-benefit situation of enterprises from two aspects: the relationship between the optimal capital structure of enterprises and the benefits brought by increasing tax protection and the expected cost of bankruptcy, and the positive correlation between tax revenue (interest tax shield) and predicted tax revenue and leverage, Point out that Professor Toni White's research groundbreaking consideration of the cost of corporate income tax. However, further clarification is needed on how to measure the tax sensitivity of debt costs, the endogeneity of tax cuts themselves, the increase in corporate credit risk after tax cuts, and the insignificant structure after tax increases. In addition, she further proposed extended thinking and her own insights on researchable issues such as the inclusion of states that have not experienced tax changes in the placebo test and the exploration of private enterprises that do not include financial difficulties.

Associate Professor Dai Yun from Lingnan College, Sun Yat sen University praised Professor Toni White's research in this field by borrowing Franklin's famous quote: "There is nothing in this world that can be determined except for death and taxes. Subsequently, Associate Professor Dai Yun also used the classic theory of balancing corporate capital structure as a starting point, pointing out that tax shields in debt will increase the value of debt, while financial distress will reduce the value of debt. Finally, Associate Professor Dai Yun pointed out that based on this sharing, more empirical research directions can be associated, such as using scale or public status indicators to measure leverage, updating indicators such as dependence on debt financing and debt security, and refining research on such corporate income tax issues from the supply side.

Professor Toni White expressed gratitude and praise for the opinions and suggestions of the two reviewers, and then conducted in-depth discussions and exchanges on the issues of external tax reduction and expected effects.

Professor Toni White, a renowned scholar in the field of financial economics, closely revolves around the theme of "Taxes Depress Corporate Borrowing: Evidence from Private Firms". Using private enterprise data and a dynamic equilibrium model that includes external shocks such as corporate assets and debt, corporate income tax, etc., he demonstrates that tax cuts will lead to higher default thresholds and lower credit interest spreads by simulating various shocks. Professor Toni White guided the audience to have a deeper understanding of the income tax shield and its heterogeneous impact with a clear and organized reporting framework and rich empirical analysis, which greatly benefited participants. Two invited reviewers, Professor Liu Xiaolei from Peking University and Associate Professor Dai Yun from Sun Yat sen University, summarized the content and contributions of this cutting-edge research and provided research points and related ideas that can be further clarified and improved, providing more perspectives and dimensions for attendees. The rigorous latest research, precise peer reviews, and multi-dimensional interaction at the conference provide an opportunity for all participants to learn from each other and benefit from each other. At the same time, this lecture, as the last in the editor in chief's series of special lectures, brought a brilliant speech in the field of financial economics, and the comments were also insightful and in place. The participants benefited greatly, marking a successful end to this year's "editor in chief face-to-face" conference on economics.