Government ownership, corporate governance and tax aggressiveness: evidence from China

Abstract

This study investigates how government ownership and corporate governance influence a firm's tax aggressiveness. Using Chinese listed companies during 2003-2009, we find that compared with government-controlled firms, nongovernment-controlled firms pursue a more aggressive tax strategy. In particular, non-government-controlled firms with a higher percentage of the board shareholdings and with a CEO who also serves as the board chairman are more aggressive. For government-controlled firms, we find that board shareholding has an impact on tax aggressiveness and it does not differ between local and central government-controlled firms. However, local government-controlled firms in less developed regions where the implementation of corporate governance measures is generally less effective are more tax aggressive than those in other regions.

The Effect of Tax Reforms on the Association between Tax Avoidance and Ownership Structure

“…For example, Zeng (2011) finds that the effective tax rates of government-controlled firms are larger than those of non-government-controlled firms. Chan et al (2013) show that non-government-controlled firms pursue a more aggressive tax strategy compared to government-controlled firms.…”

“…Based on this special principal-agent relationship, the officials or managers of state-owned firms do not have incentives to care seriously about increasing the firm value because they do no hold the absolute ownership of these assets. These managers of government-controlled firms are governmental bureaucrats, their promotions and career prospects are evaluated by various political and social objectives, not just maximization of firm value (Chan et al, 2013). According to La Porta et al (1999), we argue that government-controlled firms are run not by professional managers who are unaccountable to other shareholders but by controlling shareholders (i.e., governmental officials).…”

“…From the government-revenue protection perspective, managers of government-controlled firm strive to become the "leader" in paying taxes even at the cost of firm value (Shleifer and Vishny, 1994;Chang and Wong, 2004;Chan et al, 2013). Managers of government-controlled firms may be eager to protect government revenues than non-government-controlled firms.…”

“…Recent studies point out that managers of government-controlled firms may collude with insiders or governmental officials to divert corporate resources for individual gains especially when their salary and compensation is quite low compared with the non-government-controlled firm (Bushman et al, 2004;Bushman and Piotroski, 2006;Wang et al, 2008;Guedhami et al, 2009;Chan et al, 2013 ). state, there is a "weak control phenomenon" in corporate governance because of the characteristic of state ownership.…”

A review of research on regulation changes in the Asia‐Pacific region

“…Board independence, board financial expertise and audit committee independence have also been shown to be associated with reduced earnings management behaviour in Australia (Hutchinson et al, 2008;Clout et al, 2013). On the other hand, Gray et al (2016) show that in developed markets, such as Australia, there is no evidence that political and government connections are particularly valuable for shareholders, in contrast to studies examining the effect in developing economies (Chan et al, 2013).…”