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The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance

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  • Tao Chen

    (Nanyang Business School, Nanyang Technological University, Singapore 639798, Singapore)

  • Youchao Tan

    (School of Management, Jinan University, Guangzhou 510632, China)

  • Jinghua Wang

    (School of Accounting, Nanjing Audit University, Nanjing 211815, China; Institute of Intelligent Management Accounting and Internal Control, Nanjing Audit University, Nanjing 211815, China)

  • Cheng (Colin) Zeng

    (School of Accounting and Finance, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong)

Abstract

Using a large sample of unlisted industrial firms in China, we find that a decrease in local governments’ land transfer revenues leads to lower tax avoidance by firms within their jurisdiction. Our cross-sectional variation tests suggest that the tax-avoidance-reduction effect is stronger in cities with higher land finance dependence and government intervention, as well as where the political leaders have stronger promotion incentives. However, the effect is moderated for politically connected firms. Further analysis reveals that intensified tax enforcement is the mechanism through which land transfer revenue losses result in decreased tax avoidance. Our study offers novel evidence on a previously underexplored determinant of corporate tax avoidance through the lens of land finance.

Suggested Citation

  • Tao Chen & Youchao Tan & Jinghua Wang & Cheng (Colin) Zeng, 2022. "The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance," Management Science, INFORMS, vol. 68(11), pages 8319-8342, November.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:11:p:8319-8342
    DOI: 10.1287/mnsc.2021.4191
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