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

Abstract

State-owned shares are a characteristic ownership structure of listed firms in China. This study examines the effect of the 2008 tax reforms on tax avoidance activities for firms with different ownership types. We find that the higher percentage of government-controlled shares in firms' ownership structure, the higher is the degree of tax avoidance. Furthermore, we classify government-controlled shares into directly or indirectly owned by the state and document that indirect firms have a higher complexity of hierarchical relations to conduct more tax avoidance than direct firms. However, tax avoidance behavior becomes less obvious for state-owned firms after enacting the 2008 tax reforms.