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Are financial derivatives tax havens? Evidence from China

Author

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  • Wanyi Chen

Abstract

Purpose - The purpose of this study was to examine whether the use of financial derivatives by business enterprises can avoid taxes and whether tax authorities can detect and effectively enforce measures regarding this emerging tax avoidance method. Design/methodology/approach - Using panel data from the Shanghai and Shenzhen Stock Exchange listed companies from 2008 to 2019, this study used the Heckman self-selection two-stage model and a cross-sectional analysis to test a total of 22,578 samples. Moreover, propensity score matching (PSM), instrumental variable and Heckman MLE methods were conducted in the robustness test. Findings - The results showed that enterprises could use financial derivatives to avoid taxation. The greater the tax effort is, the more obvious the effect of the company's use of financial derivatives for tax avoidance, which proves challenging for tax authorities to identify and manage. Originality/value - This study expands on research on corporate tax avoidance and provides a new perspective for the study of financial derivatives. Moreover, it improves relevant research in the field of tax regulation, offering practical guidance for tax authorities to govern the use of financial instruments to prevent potential risks effectively.

Suggested Citation

  • Wanyi Chen, 2021. "Are financial derivatives tax havens? Evidence from China," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(8), pages 1949-1972, January.
    • Handle: RePEc:eme:ijoemp:ijoem-06-2020-0655
    DOI: 10.1108/IJOEM-06-2020-0655
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    Citations

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    Cited by:

    1. Di Song & Canyu Xu & Zewei Fu & Chao Yang, 2023. "How Does a Regulatory Minority Shareholder Influence the ESG Performance? A Quasi-Natural Experiment," Sustainability, MDPI, vol. 15(7), pages 1-22, April.
    2. Shukang Zhou & Md. Harun Ur Rashid & Shah Asadullah Mohd. Zobair & Farid Ahammad Sobhani & Abu Bakkar Siddik, 2023. "Does ESG Impact Firms’ Sustainability Performance? The Mediating Effect of Innovation Performance," Sustainability, MDPI, vol. 15(6), pages 1-21, March.
    3. Xiaoqiu Chen & Jinxiang Wang, 2024. "The Impact of Regional Carbon Emission Reduction on Corporate ESG Performance in China," Sustainability, MDPI, vol. 16(13), pages 1-28, July.

    More about this item

    Keywords

    Financial derivatives; Corporate tax avoidance; Tax regulation; Monitor discretion; Tax haven; G15; G38; M21; M41;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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