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The effect of digitalized tax administration on stock price crash risk: A natural experiment in China

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  • Wang, Deli
  • Shi, Yaya
  • Li, Qian

Abstract

Using a digitalization event of tax governance (the Golden Tax Project III (GTP III)) as a natural experiment, this paper exploits the staggered DID method to investigate the impact of digitalized tax administration on firm-specific future stock price crash risk (SPCR) in China. Our results reveal that the GTP III appears to reduce SPCR. Our findings highlight that the digitalized tax administration has a more prominent association with SPCR for local state-owned enterprises (compared to central state-owned enterprises) and privately controlled enterprises with political connections (compared to privately controlled enterprises without political connections). We also find that the mitigation effect of digitalized tax administration on SPCR is only significant in regions with relatively developed digital economies, for firms managed by senior executives without any financial backgrounds, and firms that receive less media attention. Further investigation reveals that the digitalized tax administration helps to reduce SPCR through the mechanism of tax avoidance, rent-seeking and information transparency.

Suggested Citation

  • Wang, Deli & Shi, Yaya & Li, Qian, 2024. "The effect of digitalized tax administration on stock price crash risk: A natural experiment in China," Research in International Business and Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000114
    DOI: 10.1016/j.ribaf.2024.102219
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