Does Public Governance Matter in Corporate Tax Avoidance? Evidence from the Anti-Corruption Campaign in China

40 Pages Posted: 8 Nov 2023

See all articles by Jiahang Zhang

Jiahang Zhang

HKU Business School, The University of Hong Kong

Chengkun Liu

Macau University of Science and Technology

Grace Sun

Macau University of Science and Technology

Xu Zhang

University of Macau

Abstract

Taking advantage of China’s anti-corruption campaign, we construct a natural experiment to explore how public sector governance impacts corporate tax avoidance. Using a sample of A-share listed firms from 2009 to 2015, we find that the enhanced public governance significantly attenuates corporate tax avoidance in the post-campaign period. We further show that both entertainment and travel costs expenditures and their impacts on tax avoidance are reduced caused by anti-corruption regulations. In addition, we also document that investors are prone to value less on tax avoidance activities after anti-corruption campaign. This study highlights the importance of public governance in restricting tax avoidance practice and hence has meaningful implications on the tax base erosion problem for policy-makers worldwide.

Keywords: Public governance, Tax avoidance, Anti-corruption campaign, Entertainment and travel costs, Firm value

Suggested Citation

Zhang, Jiahang and Liu, Chengkun and Sun, Grace and Zhang, Xu, Does Public Governance Matter in Corporate Tax Avoidance? Evidence from the Anti-Corruption Campaign in China. Available at SSRN: https://ssrn.com/abstract=4626995 or http://dx.doi.org/10.2139/ssrn.4626995

Jiahang Zhang

HKU Business School, The University of Hong Kong ( email )

Hong Kong
China

Chengkun Liu

Macau University of Science and Technology ( email )

China

Grace Sun (Contact Author)

Macau University of Science and Technology ( email )

Xu Zhang

University of Macau ( email )

Macau

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