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Market liberalization and tax avoidance: Evidence from the Shanghai-Hong Kong Stock Connect Program in China

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  • Jiang, Dequan
  • Li, Weiping
  • Shen, Yongjian
  • Yao, Zhenye

Abstract

This study employs two market liberalization programs in China, the Shanghai-Hong Kong Stock Connect (SHSC) program and the Shenzhen-Hong Kong Stock Connect (SZHSC) program, as an exogenous shock to stock market liberalization to explore the impact of market liberalization on tax avoidance. By employing the staggered difference-in-difference regression on Chinese listed firms, we found that market liberalization reduces tax avoidance by approximately 13.1%. This result is robust under parallel trend examination, falsification test, alternative regression methodology, and different measurements for tax avoidance. Additionally, this effect is greater for non-state-owned firms and for firms that have less external monitoring, higher information asymmetry, and stronger financial constraints.

Suggested Citation

  • Jiang, Dequan & Li, Weiping & Shen, Yongjian & Yao, Zhenye, 2020. "Market liberalization and tax avoidance: Evidence from the Shanghai-Hong Kong Stock Connect Program in China," Economic Systems, Elsevier, vol. 44(3).
    • Handle: RePEc:eee:ecosys:v:44:y:2020:i:3:s093936251830462x
    DOI: 10.1016/j.ecosys.2020.100811
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