Profit‐tax relationship, business group affiliation, and external monitoring in china

Lin, Kenny Z.; Shi, Shanshan; Tang, Feng

doi:10.1111/jifm.12128

Cited by 5 publications

(4 citation statements)

References 53 publications

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“…Therefore, although they are independent taxpayers, group‐affiliated firms are incentivized to shift income from high‐tax affiliates to low‐tax affiliates by exploiting their group affiliation to reduce group‐wide tax burdens. Several studies have provided empirical evidence supporting this view (e.g., Beatty & Harris, 2001; Gramlich et al, 2004; Lin et al, 2021; Park, 2018). These studies concerning tax‐motivated income shifting support the expectation that a nonfinancial group may utilize its financial affiliates to reduce tax burdens across the group.…”

Section: Research Background and Hypothesis Developmentmentioning

confidence: 98%

“…More specifically, they have an extensively interwoven ownership structure (i.e., pyramidal and/or cross-shareholding) among affiliated firms and make group-wide collective decisions to achieve group-level goals (Bae & Jeong, 2007;Jung et al, 2009). The complex ownership structures and group-level decision-making induce affiliated firms to strategically design and execute complex transactions such as intragroup transactions, cross subsidization and unfair support (He et al, 2013;Khanna & Palepu, 2000;Lin et al, 2021). In other words, despite the tighter regulatory environment, Designated Groups may find themselves in an advantageous position to avoid regulations and reduce taxes (Jung et al, 2009;Park, 2017).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…First, this prediction is derived from a combination of two streams of the literature. (1) A long line of research has provided empirical evidence that business groups consisting of multiple business entities engage in income shifting and tax avoidance by exploiting differences in tax rates or regulation severity among affiliates to mitigate the overall tax burdens of the group (e.g., Beatty & Harris, 2001; Dowd et al, 2017; Gramlich et al, 2004; Lin et al, 2021). (2) Empirical and case studies have documented that financial institutions, which have tax‐planning expertise and knowledge, play a role in firms' tax planning by transmitting tax‐planning strategies among their corporate clients or developing financial instruments and transactions that reduce client tax burden (e.g., Cheng & Qi, 2019; Chernykh & Mityakov, 2017; Gallemore et al, 2019; Kim et al, 2023).…”

Section: Introductionmentioning

confidence: 99%

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The role of financial affiliates in tax avoidance by business groups: Evidence from Korea

Shim

2023

Financ Manag Account

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This study examines whether financial affiliates within a nonfinancial business group perform certain roles and functions in tax avoidance by other nonfinancial affiliates or the group as a whole. Financial institutions have tax‐planning expertise and knowledge and thus may assist other affiliates of the same group in avoiding taxes. In addition, regulatory loopholes leave scope for tax avoidance involving financial affiliates. Using 10,659 firm‐year observations from 866 nonfinancial listed firms affiliated with business groups in Korea over the period 2001–2019, I find that firms belonging to nonfinancial groups with financial affiliates exhibit higher levels of tax avoidance than those belonging to nonfinancial groups without financial affiliates. The same result is observed at the group‐level tax avoidance as well as the firm‐level tax avoidance. In addition, I provide evidence that KFTC‐designated business groups subject to tighter regulation engage more in tax avoidance by utilizing financial affiliates in the blind spots of regulation and oversight, and that related‐party transactions (i.e., intragroup transactions) are used as avenues for financial affiliates to help other affiliates in tax avoidance. This study is one of the first empirical studies to shed light on the role of financial affiliates of nonfinancial groups in tax planning.

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Section: Research Background and Hypothesis Developmentmentioning

confidence: 98%

Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The role of financial affiliates in tax avoidance by business groups: Evidence from Korea

Shim

2023

Financ Manag Account

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“…To the best of our knowledge, the role of the same network auditors in the FBGs is unexplored regarding EM in general and Pakistan in particular, which is an emerging economy. Furthermore, previous research has examined the role of audit quality in business groups and EM (Muttakin et al , 2017; Ocak et al , 2021), the board quality and business group affiliation (Johl et al , 2016), the role of the business group and listing status on EM (Kim and Yi, 2006), the role of ownership concentration and client importance on EM in business groups (Bhutta et al , 2016) and the role of external monitoring in group affiliated firms (Lin et al , 2021). To the best of our knowledge, no study in the literature has examined the role of same network auditors on EM in FBG-affiliated firms.…”

Section: Introductionmentioning

confidence: 99%

The same network auditor, family business groups and earnings manipulation: an evidence from emerging market

Khan

Kamal

2023

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Purpose This paper aims to examine whether family business groups’ (FBG) having the same network auditor among their affiliates mitigates earnings manipulation (EM). Design/methodology/approach This paper used unbalanced panel data from the years 2010–2019. The sample of the study is composed of 327 nonfinancial listed Pakistan Stock Exchange firms, consisting of 187 FBG-affiliated firms and 140 nonaffiliated firms. The ordinary least square and generalized least square regressions have been used to check the hypothesized relationship. Furthermore, the propensity score matching technique is used to ascertain comparable companies’ features and to control the potential endogeneity problem. Finally, the results are robust to various measures of EM and FBG’ proxies. Findings The findings of the study show that the same network auditor is reducing EM in FBG affiliates. In addition, the BIG4 same network auditors are also instrumental in constraining EM as compared to non-BIG4 audit firms. Overall, the results of this study depict that the same network auditor in FBG’s affiliated firms significantly influences EM. These results are robust with respect to generalized least squares and the endogeneity problem. Research limitations/implications This research study has two important implications for the interested parties. First, although the authors find in this research study that the same network auditor is negatively associated with EM in the FBG-affiliated firms, however, FBG-affiliated firms might use opportunistically the real activity manipulation. Second, regulators highlight the change in audit partner/firm rotation, though the study findings indicate that regulators and practitioners may consider the benefits associated with the same network auditors for FBG. Originality/value This research study adds a new investigation to previous literature by examining the role of the same network auditors in the EM of the FBG’ affiliates. To the best of the author’s knowledge, this is the first study to bring new knowledge by investigating the role played by the same network auditors along with the BIG4 same network audit firms in constraining EM in FBG.

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Bibliometric and scientometric analysis of the scientific field in taxation

et al. 2023

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Profit‐tax relationship, business group affiliation, and external monitoring in china

Cited by 5 publications

References 53 publications

The role of financial affiliates in tax avoidance by business groups: Evidence from Korea

The role of financial affiliates in tax avoidance by business groups: Evidence from Korea

The same network auditor, family business groups and earnings manipulation: an evidence from emerging market

Bibliometric and scientometric analysis of the scientific field in taxation

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