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Does tax avoidance information disclosure promote capital market pricing efficiency? Evidence from a quasi-natural experiment in China

Author

Listed:
  • Wu, Zheng
  • Cheng, Moyi
  • Wang, Bing
  • Zhao, Yi

Abstract

We investigate how tax avoidance information disclosure shapes capital market pricing efficiency, using China's phased implementation of the country-by-country reporting (CbCR) regime as a quasi-natural experimental setting. Existing studies suggest that tax avoidance disclosure enhances transparency, but its impact on capital market efficiency remains underexplored. Using a staggered difference-in-differences (DID) approach, we find that tax avoidance disclosure significantly improves capital market pricing efficiency, especially in firms with standard unqualified audit opinions, higher R&D expenditures, more independent directors, and non-state-owned ownership. Mechanism analysis demonstrates that this effect arises from diminished tax evasion and improved information disclosure. The results indicate that the implementing of CbCR improves transparency, thereby mitigating information asymmetry and strengthening informational efficiency in capital markets. The study also offers policy insights for improving corporate transparency and tax regulation.

Suggested Citation

  • Wu, Zheng & Cheng, Moyi & Wang, Bing & Zhao, Yi, 2025. "Does tax avoidance information disclosure promote capital market pricing efficiency? Evidence from a quasi-natural experiment in China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1612-1629.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:1612-1629
    DOI: 10.1016/j.eap.2025.07.021
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    Keywords

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    JEL classification:

    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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