Agency costs and tax planning when the government is a major Shareholder

Bradshaw, Mark T.; Liao, Guanmin; Ma, Mark

doi:10.1016/j.jacceco.2018.10.002

Cited by 261 publications

(155 citation statements)

References 73 publications

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“…On the other hand, SOEs’ controlling shareholder is the government. Therefore, taxes paid to the government are essentially a dividend (Bradshaw et al ., ). Under such an ownership structure, the government has less incentive to minimize the taxes of SOEs than NSOEs do and SOEs are less likely to engage in tax avoidance.…”

Section: Resultsmentioning

confidence: 97%

“…We control for other factors that the literature has shown to affect tax avoidance (Li et al ., ; Bradshaw et al ., ). These factors include a firm's return on assets ( ROA ); size ( SIZE ); revenue growth ( GROWTH ); leverage ( LEV ); property, plant, and equipment ( PPE ); intangible assets ( INTANG ); inventory ( INVENT ); investment income ( EQINC ); modified Jones model discretional accruals ( DACC ).…”

Section: Methodsmentioning

confidence: 97%

“…The Chinese tax system is two tiered and administered by both the National Tax Bureau (NTB) and local tax bureaus (LTBs). This allows local government officials to have a great influence on corporate tax burdens (Li and Zhou, ; Tang et al ., ; Bradshaw et al ., ). Provincial governors can endow tax favors to affiliated regions through targeted tax policies, weakened enforcement, and special tax rebates.…”

Section: Introductionmentioning

confidence: 97%

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Regional favoritism and tax avoidance: evidence from China

Chen

Huang

Liu

et al. 2019

Accounting & Finance

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This paper investigates the effect of officials' regional favoritism on corporate tax avoidance activity in China. We find that firms located in regions that were formerly administered by the current provincial governors have a higher level of tax avoidance than other firms in the province. Further evidence indicates that regional favoritism affects tax avoidance through two channels: regional politicians' personal connections with the governor and firms' political access to the governor. Overall, the findings support China's current official selection and promotion guidelines that restrict hometown favoritism. Our results further imply that favoritism can also extend to officials' former administrative regions.

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Section: Resultsmentioning

confidence: 97%

Section: Methodsmentioning

confidence: 97%

Section: Introductionmentioning

confidence: 97%

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Regional favoritism and tax avoidance: evidence from China

Chen

Huang

Liu

et al. 2019

Accounting & Finance

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“…For example, Chow et al (2019) using a direct measure of illegal tax evasion find that state-owned enterprises are more likely to engage in tax evasion than non-SOEs. In contrast, Bradshaw et al (2019) used ETR measures and found that SOEs are less likely to engage in tax avoidance than non-SOEs. These contrasting results indicate that different measurements of tax avoidance could result in materially different results.…”

Section: Measure Based On Disclosure Of Tax Enforcement Actionsmentioning

confidence: 99%

Corporate Tax Avoidance: A Literature Review and Research Agenda

Wang

Sun

et al. 2019

Journal of Economic Surveys

185

112

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Tax avoidance can range from reduction of the corporate tax burden by legitimate use of tax rules to violation of tax laws. In this paper, we endeavor to synthesize the major findings of tax avoidance research from the accounting and finance literatures over the past ten years. We consider theoretical developments and the related empirical findings about the interconnected issues of measuring tax avoidance, and the possible causes and outcomes of corporate tax avoidance. We present some ideas for further research to examine underexplored topics regarding tax avoidance.

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“…Panel B presents the results from a non-recursive (bidirectional) path analysis where we allow TAX_FACTOR to affect OREC and vice versa. To implement the non-recursive path model, we augment equations in our SEM by an additional equation for the determinants of tax aggressiveness (TAX_FACTOR) (e.g., Bradshaw et al 2019) that also controls for OREC. Panel C presents the results from the same recursive (unidirectional) path analysis as in panel A partitioned by the SOE status.…”

Section: Primary Path Analysesmentioning

confidence: 99%

How Aggressive Tax Planning Facilitates the Diversion of Corporate Resources: Evidence from Path Analysis

Bauer

Fang

Pittman

et al. 2020

Contemporary Accting Res

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In measuring tunneling with intercorporate loans disclosed by Chinese listed companies, we analyze the underlying channels through which aggressive tax planning facilitates the diversion of corporate resources by firm insiders. Using path analysis, we document that the path from tax aggressiveness to related loans is mediated by both the additional cash flows from tax savings and the increased financial opacity from tax planning, and that additional cash flows plays a much more important role than opacity in helping controlling shareholders to divert corporate resources under the guise of tax aggressiveness. Beyond the two mediated paths, we also detect a residual, direct path from tax aggressiveness to related loans. After an exogenous shock from the government crackdown on diversionary related loans, we find the direct path is fully mediated by the two indirect paths, suggesting that tunneling via related loans only occurs at firms where insiders can mask tunneling under the cover of opacity or can justify related loans on grounds of abnormal cash flows from tax savings. Our evidence supports the notion that greater outside scrutiny increases the hurdle for, but does not entirely eradicate, diversion facilitated by tax aggressiveness. Collectively, our research lends some support to recent theory on the importance of taxes to corporate governance by demonstrating how the agency costs of tax planning allow certain shareholders to benefit from firm activities at the expense of others.

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Agency costs and tax planning when the government is a major Shareholder

Cited by 261 publications

References 73 publications

Regional favoritism and tax avoidance: evidence from China

Regional favoritism and tax avoidance: evidence from China

Corporate Tax Avoidance: A Literature Review and Research Agenda

How Aggressive Tax Planning Facilitates the Diversion of Corporate Resources: Evidence from Path Analysis

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