Controlling Shareholders’ Incentive and Corporate Tax Avoidance – A Natural Experiment in China

Journal of Business Finance & Accounting, Forthcoming

44 Pages Posted: 27 Feb 2014 Last revised: 12 Apr 2017

See all articles by Oliver Zhen Li

Oliver Zhen Li

National University of Singapore (NUS)

Hang Liu

Dongbei University of Finance and Economics

Chenkai Ni

Fudan University

Multiple version iconThere are 2 versions of this paper

Date Written: February 12, 2017

Abstract

The split share structure reform in China aligned the incentive of controlling shareholders with that of minority shareholders by granting trading rights to previously non-tradable shares. We find that the reform increases firms’ tax avoidance activities that are value-enhancing. However, the change in tax avoidance is only observed in state-owned firms where, compared to non-state-owned firms, the agency conflict between the controlling shareholder (the government) and minority shareholders is aggravated due to the fact that the former also serves as the tax claimant. Further, this effect is more pronounced in state-owned firms that are more likely to be influenced by the government prior to the reform. Finally, the reform reinforces a positive association between tax avoidance and firm value through an improvement in governance.

Keywords: tax avoidance, split share structure reform, agency conflict, controlling shareholder

JEL Classification: G18, G30, H25, H26

Suggested Citation

Li, Oliver Zhen and Liu, Hang and Ni, Chenkai, Controlling Shareholders’ Incentive and Corporate Tax Avoidance – A Natural Experiment in China (February 12, 2017). Journal of Business Finance & Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2401619 or http://dx.doi.org/10.2139/ssrn.2401619

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Hang Liu

Dongbei University of Finance and Economics ( email )

Dalian, 116025
China

Chenkai Ni

Fudan University ( email )

Guoshun Road 670
Yangpu
Shanghai, Shanghai 200433
China

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