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Pyramidal structure, political intervention and firms' tax burden: Evidence from China's local SOEs

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  • Zhang, Min
  • M, Lijun
  • Zhang, Bo
  • Yi, Zhihong

Abstract

Using a sample of Chinese firms, we examine the influence of state-pyramids on corporate tax burden. We find results that state-pyramidal layers are significantly and negatively associated with effective tax rates, indicating that pyramids formed by the state protect local state-owned enterprises (SOEs) from political intervention. The results hold after controlling for potential endogeneity. We further find evidences suggesting that taxation is one of the channels through which state-controlled pyramids increase firm value. Our study contributes to both corporate finance and corporate tax literatures by documenting the role of pyramidal organizational structures in reducing local SOEs' tax burden.

Suggested Citation

  • Zhang, Min & M, Lijun & Zhang, Bo & Yi, Zhihong, 2016. "Pyramidal structure, political intervention and firms' tax burden: Evidence from China's local SOEs," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 15-25.
    • Handle: RePEc:eee:corfin:v:36:y:2016:i:c:p:15-25
    DOI: 10.1016/j.jcorpfin.2015.10.004
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    More about this item

    Keywords

    Pyramidal structure; Local SOEs; Political intervention; Tax burden;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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