CEO Early-Life Disaster Experience and Tax Avoidance: Chinese Evidence

A Note on the Causal Factors of China's Famine in 1959–1961

The participation of Communist Party of China （thereafter CPC） in corporate governance is an important feature of corporate governance structure in China. CPC organizations play a political core or political leading role in both state-owned and non-state-owned companies. The institution “two-way entry and cross-appointment” combines CPC organizations with governance mechanisms such as the board of directors and the board of supervisors organically and enables CPC organizations to play significant roles in companies’ major production and operation activities. Tax avoidance not only means that more wealth can be left in companies, but also relates higher legal/regulatory risks, reputational risks, agency problems （especially “rent diversion”） and increased opacity. As an important strategic activity of a company, tax avoidance is inevitably affected by corporate governance. Although there is plenty of literature about the relationship between corporate governance and tax avoidance, it is not clear whether CPC’s participation in corporate governance through “two-way entry and cross-appointment” has a significant impact on tax avoidance activities. Using the data of A-share non-financial listed companies from 2009 to 2016, this paper examines the impact of CPC’s participation in corporate governance through “two-way entry and cross-appointment” on corporate tax avoidance. The results show that “two-way entry” has little impact on tax aggressiveness, while “cross-appointment” has a significantly negative effect on tax aggressiveness. Further tests show that “cross-representation” can decrease the likelihood that the degree of tax aggressiveness is extremely high, but it could not lead to extremely low tax aggressiveness. The results also show that “cross-appointment” can decrease tax aggressiveness significantly when it is at a high level, while the effect is not significant when it is at a low level. In summary, CPS’s participation in corporate governance has a negative effect on tax aggressiveness only when tax aggressiveness is at a high level. In addition, there is no significant difference in the impact of “cross-appointment” between state-owned and non-state-owned companies, although the authors only find weak evidence to support the negative effect of “cross-appointment” on tax avoidance in non-state-owned companies. There is no significant difference in the effect of “cross-appointment” on tax avoidance before and after 2013 either. This paper makes three contributions to the literature: First, it provides empirical evidence on the economic consequences of CPC’s participation in governance from the perspective of corporate tax avoidance behaviors. It is helpful to understand the role of CPC’s participation in governance in suppressing corporate misconduct and promoting better fulfillment of corporate tax obligations. Second, it explores and finds the asymmetric effect of CPC’s participation in governance on tax avoidance. It implies that the participation of CPC in governance will not prevent companies from normal and low risk-related tax avoidance activities. Such results extend the research of Armstrong, et al. （2015） and Li, et al. （2016）, and help to evaluate the consequences of party organizations’ participation in governance more comprehensively and objectively. Third, it enriches the literature on the relationship between corporate governance mechanisms and tax avoidance activities from the perspective of political governance.

SynopsisThe research problemThis paper explores the association between postmaterialistic culture and corporate tax-avoidance behavior.MotivationAlthough corporate tax avoidance is prevalent, the degree of tax avoidance varies across countries. Previous studies have suggested that national culture is associated with the level of tax avoidance (e.g., corruption culture in [DeBacker, J., Heim, B. T., & Tran, A. (2015). Importing corruption culture from overseas: Evidence from corporate tax evasion in the United States. Journal of Financial Economics, 117(1), 122–138. https://doi.org/10.1016/j.jfineco.2012.11.009 ], and societal trust in [Kanagaretnam, K., Lee, J., Lim, C. Y., & Lobo, G. J. (2018). Societal trust and corporate tax avoidance. Review of Accounting Studies, 23(4), 1588–1628. https://doi.org/10.1007/s11142-018-9466-y ], among others). Unlike prior studies focusing on longstanding cultural factors, this paper examined the association between corporate tax avoidance and an important current culture trend, i.e., postmaterialistic culture.The test hypothesesThere is no association between postmaterialistic culture and corporate tax avoidance.Target populationVarious stakeholders that care about corporate tax avoidance including the government, policymakers, investors, auditors, and firm managers.Adopted methodologyLinear Probability Model and Ordinary Least Squares regressions.AnalysesWe examined the association between postmaterialistic culture and corporate tax-avoidance behavior. We used a proprietary dataset of China tax audits spanning the 2011–2014 period and tested the moderating effect of tax enforcement. We also examined the external validity of our results using a cross-country sample from 21 countries over the 1993–2014 period.FindingsUsing a proprietary dataset of China tax audits, we found that firms owned by investors from countries with higher postmaterialism values were less likely to engage in tax-avoidance behavior in China. In addition, we found some evidence that the negative association between postmaterialism and tax avoidance is more pronounced when tax enforcement is stronger, indicating that national culture and formal institutions act as complements. To check the external validity of our main results, we further used a cross-country sample from 21 countries over 22 years. The evidence from the cross-country sample was consistent with the findings obtained from the China tax audits setting.

Purpose This study aims to investigate the relationship between chief executive officer (CEO) power and the level of tax avoidance of Tunisian listed companies. It also examines the moderating role of institutional ownership in this association. Design/methodology/approach The sample comprises 306 firm-year observations of companies listed on the Tunis Stock Exchange during the 2013–2020 period. Findings The results indicate that CEO power reduces tax avoidance levels. Moreover, the relationship between CEO power and tax avoidance is more pronounced in the presence of institutional ownership, suggesting that CEOs act less opportunistically when monitored by institutional investors, which results in a reduction in tax avoidance. Practical implications This study suggests that CEO power and institutional shareholders’ influence are important factors in determining firms’ avoidance behavior. This study has significant implications for shareholders and regulatory bodies. Indeed, shareholders apprehend the impact of appointing a powerful CEO on tax avoidance practices. This study may also provide regulators with new insights into the influence of CEO power dimensions and institutional ownership on tax aggressiveness. Originality/value This study fills the gap in the accounting literature by investigating how CEO power may impact tax avoidance behavior and provides empirical evidence on the moderating impact of institutional ownership on this relationship in an emerging economy context characterized by a weakly protected investor setting.

Using data from Chinese A‐share listed companies from 2007 to 2022, we employ quantile regression to examine the impact of institutional ownership on corporate tax avoidance. The findings demonstrate that institutional ownership significantly reduces extreme short‐term tax avoidance behavior by companies and also influences their long‐term tax avoidance strategies. Moreover, institutional ownership effectively narrows the gap between a company’s effective tax rate and the industry average tax rate, indicating an optimizing effect on corporate tax planning. Additional analysis reveals the dynamic adjustment effect of institutional ownership on corporate tax avoidance strategies. Furthermore, the impact of institutional ownership on corporate tax avoidance significantly diminishes after controlling for the number of institutional investors. These findings contribute to a deeper understanding of the supervisory and governance role of institutional ownership in the operation of listed companies.

The study mainly examined the effect of chief executive officers’ attribute on tax avoidance of listed non-financial firms in Nigeria. To achieve this objective, this study specifically tests the hypothesis that chief executive officers’ attributes in the context of chief executive officers’ tenure, chief executive officers’ ownership, chief executive officers’ gender and chief executive officers’ nationality significantly affects tax avoidance over a 10year time frame (2012 – 2021) for non-financial listed firms in Nigeria. This study is anchored on the Upper Echelon Theory noting that the key concept of the upper echelon theory is that the company reflects its chief executive officer. Robust regression analysis technique was employed to test the formulated hypotheses after fulfilling the necessary conditions for obtaining non-spurious regression estimates. Specifically, the result reveals mixed evidence suggesting that the effect of chief executive officers’ attribute on tax avoidance depends on the observed or unobserved traits. Particularly, the result suggests that higher ownership rights owned by the chief executive officer reduces the level of tax avoidance of listed non-finance firms in Nigeria. Therefore, this study recommends among others that to optimize the non-debt tax saving strategy, management must develop a culture within the organization that values responsible tax planning and encourages chief executive officers’ to actively consider the non-debt tax shield as a strategic tool. Further, management team should promote transparency and open communication about tax strategies, ensuring that tax planning is integrated into overall business decision-making processes.
 Keywords: Chief Executive Officer Attribute, Tax Avoidance, Robust Regression, Upper Echelon Theory.

Corporate Governance, Incentives, and Tax Avoidance

Corporate social responsibility and tax avoidance: A comment and reflection

Although corporate tax avoidance strategies may increase internal funding that supports innovation, they can also undermine it by weakening governance and encouraging short-term financial objectives. However, the overall impact remains theoretically contested, with insufficient empirical research available. This study examines the relationship between corporate tax avoidance and innovation, focusing on the moderating role of environmental, social, and governance (ESG) practices. Using a panel dataset of 12,408 firm-year observations of South Korean listed companies from 2014 to 2023, Tobit regression analyses reveal a statistically significant negative association between tax avoidance and innovation. Notably, this negative relationship is significantly mitigated in ESG-engaged firms, particularly those with stronger ESG performance. Further analysis indicates that these moderating effects are driven primarily by the social and governance domains. These findings suggest that ESG practices can offset the detrimental effects of tax avoidance by strengthening governance and stakeholder alignment. This study underscores the importance of integrating ESG principles into corporate tax strategies to support long-term innovation and sustainable corporate development.

This thesis empirically investigates three important topics: corporate governance, CEO managerial incentives, and tax avoidance in the context of FTSE 350 listed firms on London Stock Exchange (LSE). First Topic – Chapter 3 examines the impact of CEO managerial incentives in taking extreme risky decisions and the exploding effects on tax avoidance. Unresolved agency problems relentlessly foster entrenchment and significantly explain greater rent extraction. Our results consistently indicate that higher CEO equity incentives (proxy Vega) is positively and significantly associated with tax avoidance. Findings provide evidence that CEOs play a prominent role in corporate tax decisions and opportunistically set the tone for tax avoidance. We also find that the effect of CEOs' incentives (proxy Delta) is positive and statistically significant. This paper extends the literature about the impact of CEO equity incentives on firm tax avoidance in the context of UK public companies. It further contributes to elucidate on how CEO equity incentives shape firm behaviour, affect corporate short- and long-term investments, and channel important tax loopholes decisions. Standing as the main determinant of corporate tax avoidance, the analysis of CEOs’ excessive risk-taking behaviour stems as a hot topic, not yet explored in the UK mainstream literature. Second Topic – Chapter 4 tests the effect of tax avoidance on firm performance, using a matched sample of UK firms listed on LSE over 1999–2019. We document a significant positive relationship between tax avoidance and firm financial performance proxied first by Tobin’s Q. We also find that Return on Assets (ROA) exhibits a strong positive relationship with Generally Accepted Accounting Principles Effective Tax Rate (GAAP ETR) but is insignificant with CASH ETR. The significant positive correlation with both performance metrics persists when we account for potential endogeneity concerns using propensity score matching, and first- and two-least-squares approaches. Furthermore, we find that Return on Equity (ROE) is negatively associated with tax avoidance. We thus conclude that the effect is more centric when testing the impact on ROA and Tobin’s Q, indicating that UK firms tend to undervalue their ROA to avoid corporation tax. Our results are consistent with the view that firm tax avoidance is a medium to deviate financial resources and to orient them from the state to shareholders.Third Topic – Chapter 5 investigates the effect of product market competition on corporate tax avoidance by relying on firm-level data for FTSE 350 listed firms on LSE. Our findings indicate that low competition increases product market competition, which increases firm tax aggressiveness, and leads to more significant tax reductions. Additional analysis shows that the effect of product market competition on tax avoidance is more pronounced for firms with higher exposure to competition, deep financial distress, and weaker governance practices. Centrally, product market competition is negatively affected in the spectrum of poorly governed firms.

My thesis investigates the association between CEO power, corporate tax avoidance and tax aggressiveness, using two organizational theory perspectives: self-interest and stewardship. I find that a powerful CEO engages in less corporate tax avoidance activities, which lends credence to the risk minimization motive of the stewardship perspective. My findings on the association between CEO power and tax aggressiveness show that powerful CEOs avoid risky tax avoidance strategies that expose a firm to the various tax-related risks, cash flow diminution and reputational concerns associated with aggressive tax avoidance. As such, the results offer further support to the stewardship perspective.

All over the world, the tax avoidance practices of large multinational firms have received much media attention over the last few years, which has become a prominent reputational risk for many firms. In addition to the possible reputational risk stemming from corporate tax avoidance, these tax practices can also have dire consequences for the economies in which these firms operate. Global tax transparency initiatives were developed in an attempt to address the issues created by global tax avoidance. There is, however, little academic evidence on whether increased tax transparency can have an effect on corporate tax avoidance. The purpose of this study is therefore to investigate the relationship between tax transparency and tax avoidance. A content analysis was firstly used to qualitatively assess the extent of tax transparency disclosures in the annual corporate reports of the top 100 firms listed on the JSE. Thereafter, a regression analysis was used to determine the relationship between tax transparency and tax avoidance. Tax transparency scores were used as a proxy to measure tax transparency while both effective tax rates and cash effective tax rates were used as a proxy to measure tax avoidance. The study finds that firms which are more transparent in the disclosure of their tax affairs also have higher effective tax rates and cash effective tax rates.

[Purpose]This paper examines the relationship between various characteristics of the corporate governance and the tax avoidance. [Methodology]We measure the tax avoidance by using long－run effective tax rates (GAAP ETR and current ETR are used in this research) following Dyreng et al. (2008). This study examines not only the level of tax avoidance but also the sustainability of a firm’s tax strategy following McGuire(2013). [Findings]The results show that the ownership concentration has a significant relation to the corporate tax management. To explain concretely, the ownership concentration has negative associations with the corporate tax avoidance and positive associations with the sustainability of the tax strategy. It suggests that the owners face “asymmetry in cost distribution” due to much larger equity ownership, so they forgo the risky tax avoidance. It is possible to distribute tax costs, whereas it is difficult to distribute non－tax costs. The higher ownership concentration is, the more owners are concerned with non－tax costs such as potential penalty and reputation damage from being involved in a tax related lawsuit etc. [Implications]This study described the decrease in tax avoidance in companies with high concentration of ownership as “asymmetry in cost distribution” rather than capital market pressure. The “asymmetry of cost distribution” can be said to be a risk that Korea’s corporate governance structure, which exercises control over its stake, has come to bear.

Information Processing Costs and Corporate Tax Aggressiveness: Evidence from the SEC's XBRL Mandate

Corporate social responsibility and tax avoidance influence each other and impact economic growth. This research also aims to provide a systematic review of research on Corporate Social responsibility and Tax Avoidance. This paper presents a systematic literature review with thirtyseven articles from reputable international journals indexed by Scopus and WoS (from 2017 until 2022). The study found that based on the classification of research methods, analytical methods dominated research by 74%, survey methods by 19%, and literature review methods by 7%. This research also showed the latest four years (2019 until 2022), the flow of distributing articles on this topic has increased every year. It can be concluded that in this study, a literature review on the topics of corporate social responsibility and tax avoidance also showed supporting variables that are rarely studied ( Firm Performance, Employee Behaviour, and related reporting). This study is needed to provide an updated overview of extant research and draw guidelines for further research. The results of this study described not only the latest research but also the research agenda for further research in Corporate Social Responsibility and Tax Avoidance.