Effect of Government Affiliation, Ownership Structure and Tax Reform on Tax Avoidance: Evidence from Chinese State-Owned Enterprises

• In Event: Ownership Structure

Abstract

This study examines the effect of government affiliation, ownership structure, and tax reform on the degree of tax avoidance using Chinese state-owned enterprises (SOEs) as the research setting. Measuring tax avoidance by the effective tax rate (ETR) and current effective tax rate (CETR), this study reports the following findings: (1) Privately-held companies have a higher level of tax avoidance than SOEs. (2) Among SOEs, central-government controlled SOEs experience a higher degree of tax avoidance than local-government controlled SOEs. (3) Ownership structure, measured by managerial ownership and institutional shareholding, has a stronger effect on the CGCSOEs than that on the LGCSOEs regarding tax avoidance. (4) CGCSOEs enjoy a higher level of tax avoidance than LGCSOEs before and after the tax reform. In addition, the result indicates that CGCSOEs appear to have more opportunities to lower their tax burden by engaging investments in strategic industries. We conclude the study by discussing the implications of empirical findings to policymakers, regulatory agencies, and market participants.

Authors

• Nen-Chen Richard Hwang, Cal State University - San Marcos

• Yuanqin Li, Shanghai University, China