Regional favoritism and tax avoidance: evidence from China

Abstract

This paper investigates the effect of officials' regional favoritism on corporate tax avoidance activity in China. We find that firms located in regions that were formerly administered by the current provincial governors have a higher level of tax avoidance than other firms in the province. Further evidence indicates that regional favoritism affects tax avoidance through two channels: regional politicians' personal connections with the governor and firms' political access to the governor. Overall, the findings support China's current official selection and promotion guidelines that restrict hometown favoritism. Our results further imply that favoritism can also extend to officials' former administrative regions.

Locational effects and the cost of corporate bonds: the role of information

“…First, the distance to potential investors matters: generally, the further a firm is away from potential investors, the higher the information asymmetry between the two parties. Moreover, the distance to institutional investors, who are viewed as informed investors, matters more in the monitoring role that such investors play (Ayers et al ., ; Li et al ., ; Mi and Hodgson, ; Chen et al ., ), which affects the informational environment faced by firms. Second, the closer a firm gets to the credit rating agencies (CRAs) who rate the firm, the better the informational environment.…”

Can Trade Facilitation Prevent the Formation of Zombie Firms? Evidence from the China Railway Express

“…In China, there are two main reasons for the emergence of zombie firms: long-term reliance on credit subsidies and poor governance. Both reduce economic effi ciency and lead to credit risk (Chen and Huang, 2017). However, most studies on zombie fi rms have focused on credit subsidy support from goverment and banks (Caballero et al, 2008;Hoshi and Kashyap, 2010;Jiang et al, 2012) and ignored the impact of poor governance on zombie firms.…”

“…However, most studies on zombie fi rms have focused on credit subsidy support from goverment and banks (Caballero et al, 2008;Hoshi and Kashyap, 2010;Jiang et al, 2012) and ignored the impact of poor governance on zombie firms. Poor governance may reduce the efficiency of firm operations, weakening fi rms' ability to adapt to changes in the external environment, and ultimately making firms into zombie firms (Chen and Huang, 2017). T he current governance of firms cannot adapt to market environments, so strengthening market dominance and enhancing the governance ability of fi rms are key to preventing the formation of zombie fi rms (Bao and Cai, 2016).…”

“…This can further dramatically impair sustainable economic development. As the pace of economic transformation accelerates, it is of great importance to explore appropriate ways to prevent the formation of zombie fi rms if China is to realize such development (Chen and Huang, 2017).…”

“…The re have been many studies on the identification, causes, and disposal of zombie firms in China (e.g. Chen and Huang, 2017), and the impact of zombie fi rms on resource allocation and economic development has also been investigated. How ever, few have probed how to prevent their formation in relation to fi rm governance (Jiang et al, 2012).…”