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Saving or tunnelling: value effects of tax avoidance in Chinese listed local government‐controlled firms

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  • Wenzhou Qu
  • Shaoqing Kang
  • Lihong Wang

Abstract

This paper investigates the value effect of tax avoidance and its underlying mechanisms among Chinese listed local government‐controlled (LG) firms. We show that tax avoidance does not promote firm value in LG firms with government ownership smaller than 40 percent and the above negative tunnelling effect is more pronounced when the control rights are concentrated in the local government and weaker when other large shareholders can act as a countervailing force. Finally, we observe a positive relation between tax avoidance and related‐party transactions as well as overinvestment, again indicating a tunnelling effect in LG firms with government ownership smaller than 40 percent.

Suggested Citation

  • Wenzhou Qu & Shaoqing Kang & Lihong Wang, 2020. "Saving or tunnelling: value effects of tax avoidance in Chinese listed local government‐controlled firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4421-4465, December.
    • Handle: RePEc:bla:acctfi:v:60:y:2020:i:5:p:4421-4465
    DOI: 10.1111/acfi.12651
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    3. Yuqiang Cao & Zhuoan Feng & Meiting Lu & Yaowen Shan, 2021. "Tax avoidance and firm risk: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(3), pages 4967-5000, September.
    4. Weidong Zhang & Jenny Jing Wang & Guomin Luo & Yanqi Sun, 2021. "Tunnelling in asset‐injecting private placements: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5501-5522, December.

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