Financial statement comparability and corporate tax avoidance: evidence from China

Abstract

This paper examines whether financial statement comparability (hereafter referred to as comparability) is associated with corporate tax avoidance. We document the negative relationship between comparability and tax avoidance. Our findings indicate that comparability reduces information asymmetry, which makes the monitoring of managerial activities more effective. In addition, comparable information may increase the risk of detection of aggressive tax strategies, which leads to reputational, regulatory and political risks. We further examine how analyst coverage and product market competition influence the relationship between comparability and corporate tax avoidance. The results show that analyst coverage substitutes for the effect of comparability on tax avoidance. However, we do not obtain any conclusive evidence that product market competition plays a complementary role to comparability in reducing tax avoidance. Our results are robust to the various measures of comparability and tax avoidance and alternative methodological techniques.

Determinants of tax avoidance – evidence on profit tax-paying companies in Romania

“…The higher the profitability of a company, the less inclined towards tax avoidance that company is. Our results are in line with prior studies such as Higgins et al (2015), Allen et al (2016) and Majeed and Yan (2019). We also note a negative relationship of leverage with tax avoidance which was highlighted by previous research (Allen et al, 2016;Chyz et al, 2013;Drucker, 2006;Majeed & Yan, 2019;Mills & Newberry, 2005).…”

“…For this reason, we include in modelling tax avoidance a company's leverage ratio measured as debt divided by total assets (variable LEV). We expect the leverage ratio is negatively associated with tax avoidance, as prior studies suggest (Allen et al, 2016;Chyz et al, 2013;Drucker, 2006;Majeed & Yan, 2019;Mills & Newberry, 2005).…”

The effect of Confucian culture on corporate tax avoidance: evidence from China

“…Table 1 reports descriptive statistics. According to results, the mean values of TA_ETR is 0.028, which is consistent with those reported by studies in the Chinese context (e.g., Majeed & Yan, 2019). The mean values of Confucianism variables i.e., COFM1, COFM2, COFM3, COFM4, COFM5, COFM6, and COFM7 are 0.902, 0.874, 0.842, 0.816, 0.794, 0.772, and 0.746 respectively, which tally with those reported by Du (2015).…”

“…The mean value of tax enforcement efforts (TE) is 0.988, which tallies with Xu et al (2011). The mean values of control variables are consistent with those reported by prior studies in the Chinese context (Beladi et al, 2018;Majeed & Yan, 2019;Mao & Wu, 2019;Xia et al, 2017).…”

Does corporate tax avoidance explain firm performance? Evidence from an emerging economy

“…The authors argue that with better reporting comparability managerial activities are monitored more effectively, therefore increasing the likelihood of aggressive avoidance being detected. Majeed and Yan (2019) opine that analyst coverage serves as a substitute for comparability, confirming the importance of information transparency. The findings are robust to various measures of comparability and tax avoidance, as well as methodological approaches.…”