"Hitting the jackpot" in corporate tax strategy: A perspective on gambling preferences

Social norms play a crucial role in promoting tax compliance, and the impact of gambling preferences as an important social norm has been widely researched. However, it remains uncertain whether local gambling preferences influence taxpayers' tax strategies. By using gambling conviction data in China, we investigate the relationship between local gambling preferences and corporate tax avoidance. Our results indicate that firms in areas with strong gambling preferences are more likely to achieve significant tax avoidance, particularly in the right tail of the tax avoidance distribution. We further identify that weakening corporate social responsibility, increasing risk-taking ability, and reducing sensitivity to reputation loss are the primary channels through which gambling preferences contribute to tax avoidance. Furthermore, we find that tax avoidance associated with gambling preferences only enhances firms' short-term performance and has no impact on long-term performance. Our study highlights the relevance of social norms in shaping corporate tax in emerging markets.