Customer-Supplier Relationships and Corporate Tax Avoidance

46 Pages Posted: 24 Oct 2016

See all articles by Ling Cen

Ling Cen

The Chinese University of Hong Kong

Edward L. Maydew

University of North Carolina at Chapel Hill

Liandong Zhang

Singapore Management University - School of Accountancy

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: September 25, 2016

Abstract

We investigate whether firms in close customer-supplier relationships are better able to identify and implement tax avoidance strategies via supply chains. Consistent with our prediction, we find that both principal customers and their dependent suppliers avoid more taxes than other firms. Further analysis suggests that principal customers and dependent suppliers likely engage in tax strategies involving shifting profits to tax haven subsidiaries. Moreover, tax benefits appear to explain both principal customer firms’ and dependent supplier firms’ organizational decisions. Overall, our study provides evidence of the importance of tax avoidance as a source of gains from these relationships.

Keywords: tax avoidance, customers, suppliers, industrial organization, supply chain

JEL Classification: H25, H26, L14

Suggested Citation

Cen, Ling and Maydew, Edward L. and Zhang, Liandong and Zuo, Luo, Customer-Supplier Relationships and Corporate Tax Avoidance (September 25, 2016). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2857687

Ling Cen

The Chinese University of Hong Kong ( email )

CYT Building
Sha Tin
Hong Kong, Hong Kong
Hong Kong

HOME PAGE: http:///sites.google.com/site/cenling/

Edward L. Maydew (Contact Author)

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)

HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew

Liandong Zhang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://accountancy.smu.edu.sg/faculty/profile/150531/Liandong-ZHANG

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

349 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)

HOME PAGE: http://www.johnson.cornell.edu/faculty-research/faculty/lz352/

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