Customers’ Relationship-Specific Investments and Corporate Tax Avoidance

58 Pages Posted: 4 Apr 2014

See all articles by Oliver Zhen Li

Oliver Zhen Li

National University of Singapore (NUS)

Chenkai Ni

Fudan University

Min Zhang

Renmin University of China

Date Written: March 2, 2014

Abstract

We investigate whether corporate tax avoidance is affected by a firm’s relationship with its customers. We find a positive association between a firm’s tax avoidance and its customers’ relationship-specific investments, demonstrating that customers value the cash flow benefits generated by a firm’s tax savings. The absence of such a link in firms with weak corporate governance is consistent with the agency perspective of tax avoidance. Further analyses show that such an association is more pronounced when a firm has less bargaining power and when certain complementary mechanism is in place. We conclude that customer relationship is an important factor that determines a firm’s tax avoidance incentives.

Keywords: Relationship-specific investments, customers, tax avoidance, agency theory

JEL Classification: H25, H26, G30, L14, L24

Suggested Citation

Li, Oliver Zhen and Ni, Chenkai and Zhang, Min, Customers’ Relationship-Specific Investments and Corporate Tax Avoidance (March 2, 2014). Available at SSRN: https://ssrn.com/abstract=2419833 or http://dx.doi.org/10.2139/ssrn.2419833

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Chenkai Ni

Fudan University ( email )

Guoshun Road 670
Yangpu
Shanghai, Shanghai 200433
China

Min Zhang

Renmin University of China ( email )

School of Business,Renmin University of China
Beijing, Beijing 100872
China

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