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Tax avoidance and firm value: evidence from China

Author

Listed:
  • Xudong Chen
  • Na Hu
  • Xue Wang
  • Xiaofei Tang

Abstract

Purpose - – The purpose of this study is to examine whether corporate tax avoidance behavior increases firm value in Chinese context. A large number of studies conduct their designs on the consumption that tax avoidance represents wealth transfer from government to enterprises and therefore enhances firm value. This study argues that, contrast to developed countries, tax avoidance does not necessarily add value to opaque Chinese firms relative to transparent counterparts due to higher agency costs. Design/methodology/approach - – Using a large sample of Chinese listed-firms data for the period 2001-2009 and fixed effects regression model, this study examines the relation between tax avoidance and firm value. A series of robustness checks are conducted to alleviate the concern of endogeneity. Findings - – The authors find that tax avoidance behavior increases agency costs and reduces firm value. The authors further find that information transparency interacts with corporate tax avoidance, moderating the relation between tax avoidance and firm value. Investors in China react negatively to corporate tax avoidance behavior, but this negative reaction could be mitigated by information transparency. The results are robust to a series of alternative treatments, including varied measures, first-order differential approach and 2SLS. Originality/value - – The results suggest that tax avoidance does not necessarily increase firm value, part of gains are encroached by self-serving managers. Moreover, investors in China downplay the significance of tax avoidance, although corporate information transparency could soften their negative tone.

Suggested Citation

  • Xudong Chen & Na Hu & Xue Wang & Xiaofei Tang, 2014. "Tax avoidance and firm value: evidence from China," Nankai Business Review International, Emerald Group Publishing Limited, vol. 5(1), pages 25-42, February.
  • Handle: RePEc:eme:nbripp:v:5:y:2014:i:1:p:25-42
    DOI: 10.1108/NBRI-10-2013-0037
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    Citations

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    Cited by:

    1. Nguyen Vinh Khuong & Nguyen Tran Thai Ha & Phung Anh Thu, 2019. "The Relationship between Real Earnings Management and Firm Performance: The Case of Energy Firms in Vietnam," International Journal of Energy Economics and Policy, Econjournals, vol. 9(2), pages 307-314.
    2. Knaisch, Jonas, 2022. "How to account for tax planning and tax uncertainty in valuation: Separate vs. composite view," arqus Discussion Papers in Quantitative Tax Research 271, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Endro Andayani & Harti Budi Yanti, 2021. "The effect of tax avoidance, sustainbility report, corporate governance on firm value: Leverage as moderating (Empirical Study On Registered Manufacturing Companies On the Indonesia Stock Exchange 201," Technium Social Sciences Journal, Technium Science, vol. 19(1), pages 506-519, May.
    4. Akhtar, Shumi & Akhtar, Farida & John, Kose & Wong, Su-Wen, 2019. "Multinationals' tax evasion: A financial and governance perspective," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 35-62.
    5. Deden Tarmidi, 2019. "Tax Compliance and Uncompliance Entity: A Comparative Study of Investor Reaction," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(1), pages 105-110, January.
    6. Nidal Zaqeeba & Takiah Mohd Iskandar, 2020. "Mediating Effect of Tax Management on the Relationship Between Board of Directors Characteristics and Firm Performance," Journal of Information & Knowledge Management (JIKM), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-17, March.
    7. Luk Luk Fuadah & Kencana Dewi & Mukhtaruddin Mukhtaruddin & Umi Kalsum & Anton Arisman, 2022. "The Relationship between Sustainability Reporting, E-Commerce, Firm Performance and Tax Avoidance with Organizational Culture as Moderating Variable in Small and Medium Enterprises in Palembang," Sustainability, MDPI, vol. 14(7), pages 1-17, March.
    8. Michael, Bryane & Goo, Say-Hak, 2017. "Do Corporate Governance Practices In One Jurisdiction Affect Another One? Lessons from the Panama Papers," EconStor Preprints 173676, ZBW - Leibniz Information Centre for Economics.
    9. Minjie Huang & Shunan Zhao & Andreas Pape, 2023. "Estimating Case‐based Individual and Social Learning in Corporate Tax Avoidance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(2), pages 403-434, April.
    10. Nirmala Devi Mohanadas, 2019. "A Theoretical Review on Corporate Tax Avoidance: Shareholder Approach versus Stakeholder Approach," GATR Journals jfbr160, Global Academy of Training and Research (GATR) Enterprise.
    11. Chang Seop Rhee & Sohee Woo & Dong Hyun Kim, 2019. "The Effect of Female Employment on Corporate Sustainability in Terms of Tax Avoidance," Sustainability, MDPI, vol. 12(1), pages 1-15, December.

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