Prior literature documents puzzling evidence revealing that tax avoidance activities do not affect firm‐specific risk. Using an extended US sample, we find that lower cash effective tax rates (ETRs) are associated with higher future return volatility, supporting the traditional view of tax risk–return trade‐off. In sharp contrast to the US evidence, our analysis of Chinese firms suggests that Chinese state‐owned enterprises (SOEs) with lower cash and GAAP ETRs tend to have lower future risk. In addition, we adopt a difference‐in‐differences approach based on the variations generated by two exogenous, anti‐tax avoidance regulations in China but find no evidence suggesting a causal relationship between tax avoidance and firm risk. Overall, our results suggest that the relationship between tax avoidance and risk varies across countries, sample periods and tax aggressiveness measures, and we highlight the importance of addressing the endogenous nature in future research.
In September 2020, China announced its intentions to reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060 (known as the ‘30–60’ greenhouse gas reduction goals). With a focus on China’s pilot low-carbon city initiative, this paper adopts the difference-in-differences approach to examine the effect of low-carbon policies on the green development of China’s manufacturing industry. The findings show that the implementation of low-carbon policies could significantly reduce pollutants and improve productivity. The results hold after a battery of robustness tests. Further analysis shows that the effect of low-carbon policies on the emissions reduction of larger taxpayers is more pronounced, suggesting that including low-carbon policies as a part of the government’s performance assessment weakens the opportunistic behaviour of local governments in pursuing economic growth at the expense of the environment. It also finds that manufacturing firms typically do not respond to the policy in a negative way (by limiting or reducing production) but instead achieve positive emissions reduction by increasing resource recycling. The findings of this paper provide empirical evidence and policy implications to support the government expanding its low-carbon policies to a national level to mitigate climate change and achieve green manufacturing development.
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