IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v99y2025ics1057521925000043.html
   My bibliography  Save this article

Political corruption and corporate tax avoidance: A quasi-natural experiment

Author

Listed:
  • Ma, Chunguang
  • Feng, Shunfei
  • Huang, Wenhui
  • Chen, Aoyun

Abstract

Exploit a quasi-natural experiment created by China's anti-corruption campaigns, we investigate whether and how political corruption affects corporate tax strategies in this study. Taking advantage of a sample of Chinese listed companies, we find robust evidence that levels of local corruption are positively related to corporate tax avoidance. Moreover, we find that CEO traits, including gender, foreign experience, and tenure, perform a significant moderating role in the relationship we identified by influencing CEOs' perceptions of and propensity for bribery. Overall, our study sheds light on the implications of political corruption for corporate tax behavior, thus enriching the literature on corruption and corporate tax behavior.

Suggested Citation

  • Ma, Chunguang & Feng, Shunfei & Huang, Wenhui & Chen, Aoyun, 2025. "Political corruption and corporate tax avoidance: A quasi-natural experiment," International Review of Financial Analysis, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:finana:v:99:y:2025:i:c:s1057521925000043
    DOI: 10.1016/j.irfa.2025.103917
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521925000043
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2025.103917?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chen, Shuping & Chen, Xia & Cheng, Qiang & Shevlin, Terry, 2010. "Are family firms more tax aggressive than non-family firms?," Journal of Financial Economics, Elsevier, vol. 95(1), pages 41-61, January.
    2. Huang, Qianqian & Yuan, Tao, 2021. "Does Political Corruption Impede Firm Innovation? Evidence from the United States," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(1), pages 213-248, February.
    3. Hou, Qingsong & Li, Weifang & Teng, Min & Hu, May, 2022. "Just a short-lived glory?The effect of China's anti-corruption on the accuracy of analyst earnings forecasts," Journal of Corporate Finance, Elsevier, vol. 76(C).
    4. Xu, Gang & Yano, Go, 2017. "How does anti-corruption affect corporate innovation? Evidence from recent anti-corruption efforts in China," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 498-519.
    5. Swamy, Anand & Knack, Stephen & Lee, Young & Azfar, Omar, 2001. "Gender and corruption," Journal of Development Economics, Elsevier, vol. 64(1), pages 25-55, February.
    6. Roman Lanis & Grant Richardson & Grantley Taylor, 2017. "Board of Director Gender and Corporate Tax Aggressiveness: An Empirical Analysis," Journal of Business Ethics, Springer, vol. 144(3), pages 577-596, September.
    7. Yunhao Dai & Dongmin Kong & Shasha Liu, 2018. "Returnee Talent and Corporate Investment: Evidence from China," European Accounting Review, Taylor & Francis Journals, vol. 27(2), pages 313-337, March.
    8. Cao, Xiaping & Wang, Yuchen & Zhou, Sili, 2018. "Anti-corruption campaigns and corporate information release in China," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 186-203.
    9. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 2008. "Why Is Rent-Seeking So Costly to Growth?," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 213-218, Springer.
    10. DeBacker, Jason & Heim, Bradley T. & Tran, Anh, 2015. "Importing corruption culture from overseas: Evidence from corporate tax evasion in the United States," Journal of Financial Economics, Elsevier, vol. 117(1), pages 122-138.
    11. Leon Zolotoy & Don O’Sullivan & Geoffrey P. Martin & Robert M. Wiseman, 2021. "Stakeholder Agency Relationships: CEO Stock Options and Corporate Tax Avoidance," Journal of Management Studies, Wiley Blackwell, vol. 58(3), pages 782-814, May.
    12. Armstrong, Christopher S. & Blouin, Jennifer L. & Jagolinzer, Alan D. & Larcker, David F., 2015. "Corporate governance, incentives, and tax avoidance," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 1-17.
    13. Powell, Melanie & Ansic, David, 1997. "Gender differences in risk behaviour in financial decision-making: An experimental analysis," Journal of Economic Psychology, Elsevier, vol. 18(6), pages 605-628, November.
    14. Chuanlu Ge & Yuhan Bi & Jia Xu, 2024. "Local donation culture and corporate tax avoidance: Evidence from China," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 734-763, July.
    15. Huang, Chenghao & Jin, Zhi & Tian, Siyang & Wu, Eliza, 2023. "The real effects of corruption on M&A flows: Evidence from China's anti-corruption campaign," Journal of Banking & Finance, Elsevier, vol. 150(C).
    16. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    17. Wang, Xin & Song, Di, 2021. "Does local corruption affect IPO underpricing? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 127-138.
    18. Chansog (Francis) Kim & Liandong Zhang, 2016. "Corporate Political Connections and Tax Aggressiveness," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 78-114, March.
    19. Catherine C. Eckel & Philip J. Grossman, 2008. "Forecasting Risk Attitudes: An Experimental Study Using Actual and Forecast Gamble Choices," Monash Economics Working Papers archive-01, Monash University, Department of Economics.
    20. Chen, Wanyu (Tina) & Zhou, Gaoguang (Stephen) & Zhu, Xindong (Kevin), 2019. "CEO tenure and corporate social responsibility performance," Journal of Business Research, Elsevier, vol. 95(C), pages 292-302.
    21. Guo, Xingfang & Wei, Tao & Wang, Aiping & Hu, Haifeng, 2024. "Corporate governance effects of digital finance: Evidence from corporate tax avoidance in China," Research in International Business and Finance, Elsevier, vol. 72(PA).
    22. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    23. Zeki Simsek, 2007. "CEO tenure and organizational performance: an intervening model," Strategic Management Journal, Wiley Blackwell, vol. 28(6), pages 653-662, June.
    24. Jeff P. Boone & Inder K. Khurana & K. K. Raman, 2013. "Religiosity and Tax Avoidance," Working Papers 0198acc, College of Business, University of Texas at San Antonio.
    25. Yue Cao & Xinyu Hu & Yu Lu & Jun Su, 2020. "Customer Concentration, Tax Collection Intensity, and Corporate Tax Avoidance," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(11), pages 2563-2593, September.
    26. Huang, Jiekun & Kisgen, Darren J., 2013. "Gender and corporate finance: Are male executives overconfident relative to female executives?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 822-839.
    27. Charness, Gary & Gneezy, Uri, 2012. "Strong Evidence for Gender Differences in Risk Taking," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 50-58.
    28. Faccio, Mara & Marchica, Maria-Teresa & Mura, Roberto, 2016. "CEO gender, corporate risk-taking, and the efficiency of capital allocation," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 193-209.
    29. Hisham Farag & Chris Mallin, 2016. "The Impact of the Dual Board Structure and Board Diversity: Evidence from Chinese Initial Public Offerings (IPOs)," Journal of Business Ethics, Springer, vol. 139(2), pages 333-349, December.
    30. Raymond Fisman & Edward Miguel, 2007. "Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 1020-1048, December.
    31. Dow, James, 2013. "Boards, CEO entrenchment, and the cost of capital," Journal of Financial Economics, Elsevier, vol. 110(3), pages 680-695.
    32. Simon Ho & Annie Li & Kinsun Tam & Feida Zhang, 2015. "CEO Gender, Ethical Leadership, and Accounting Conservatism," Journal of Business Ethics, Springer, vol. 127(2), pages 351-370, March.
    33. Ole‐Kristian Hope & Heng Yue & Qinlin Zhong, 2020. "China's Anti‐Corruption Campaign and Financial Reporting Quality†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 1015-1043, June.
    34. Ahmed Al-Hadi & Grantley Taylor & Grant Richardson, 2022. "Are corruption and corporate tax avoidance in the United States related?," Review of Accounting Studies, Springer, vol. 27(1), pages 344-389, March.
    35. Jian Zhang & Dongmin Kong & Ji Wu, 2018. "Doing Good Business by Hiring Directors with Foreign Experience," Journal of Business Ethics, Springer, vol. 153(3), pages 859-876, December.
    36. Ali, Ashiq & Zhang, Weining, 2015. "CEO tenure and earnings management," Journal of Accounting and Economics, Elsevier, vol. 59(1), pages 60-79.
    37. Cen, Ling & Maydew, Edward L. & Zhang, Liandong & Zuo, Luo, 2017. "Customer–supplier relationships and corporate tax avoidance," Journal of Financial Economics, Elsevier, vol. 123(2), pages 377-394.
    38. Smith, Jared D., 2016. "US political corruption and firm financial policies," Journal of Financial Economics, Elsevier, vol. 121(2), pages 350-367.
    39. Guangyong Lei & Wanwan Wang & Junli Yu & Kam C. Chan, 2022. "Cultural Diversity and Corporate Tax Avoidance: Evidence from Chinese Private Enterprises," Journal of Business Ethics, Springer, vol. 176(2), pages 357-379, March.
    40. Qing Liu & Ruosi Lu & Xiangjun Ma, 2015. "Corruption, Financial Resources and Exports," Review of International Economics, Wiley Blackwell, vol. 23(5), pages 1023-1043, November.
    41. Iliev, Peter & Roth, Lukas, 2018. "Learning from directors' foreign board experiences," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 1-19.
    42. Datta, Sudip & Doan, Trang & Toscano, Francesca, 2023. "Top executive gender, corporate culture, and the value of corporate cash holdings," Journal of Financial Stability, Elsevier, vol. 67(C).
    43. Bhaskar, Ratikant & Li, Peigong & Bansal, Shashank & Kumar, Satish, 2023. "A new insight on CEO characteristics and corporate social responsibility (CSR): A meta-analytical review," International Review of Financial Analysis, Elsevier, vol. 89(C).
    44. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    45. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    46. Desai, Mihir A. & Dharmapala, Dhammika, 2006. "Corporate tax avoidance and high-powered incentives," Journal of Financial Economics, Elsevier, vol. 79(1), pages 145-179, January.
    47. Tao, Yunqing, 2020. "China’s anti-corruption campaign and bank loan loss provisions: Evidence from a quasi-natural experiment," Economics Letters, Elsevier, vol. 196(C).
    48. Zhou, Bing & Dutta, Shantanu & Zhu, Pengcheng, 2020. "CEO tenure and mergers and acquisitions," Finance Research Letters, Elsevier, vol. 34(C).
    49. Fisman, Raymond & Svensson, Jakob, 2007. "Are corruption and taxation really harmful to growth? Firm level evidence," Journal of Development Economics, Elsevier, vol. 83(1), pages 63-75, May.
    50. Nishant Dass & Vikram Nanda & Steven Chong Xiao, 2016. "Public Corruption in the United States: Implications for Local Firms," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 5(1), pages 102-138.
    51. Chakraborty, Atreya & Sheikh, Shahbaz & Subramanian, Narayanan, 2007. "Termination risk and managerial risk taking," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 170-188, March.
    52. Yue Cao & Xinyu Hu & Yu Lu & Jun Su, 2020. "Customer Concentration, Tax Collection Intensity, and Corporate Tax Avoidance," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(11), pages 2563-2593, September.
    53. Bradshaw, Mark & Liao, Guanmin & Ma, Mark (Shuai), 2019. "Agency costs and tax planning when the government is a major Shareholder," Journal of Accounting and Economics, Elsevier, vol. 67(2), pages 255-277.
    54. Liu, Xiaoding, 2016. "Corruption culture and corporate misconduct," Journal of Financial Economics, Elsevier, vol. 122(2), pages 307-327.
    55. Roman Lanis & Grant Richardson, 2015. "Is Corporate Social Responsibility Performance Associated with Tax Avoidance?," Journal of Business Ethics, Springer, vol. 127(2), pages 439-457, March.
    56. Mariassunta Giannetti & Guanmin Liao & Xiaoyun Yu, 2015. "The Brain Gain of Corporate Boards: Evidence from China," Journal of Finance, American Finance Association, vol. 70(4), pages 1629-1682, August.
    57. Fabio B. Gaertner, 2014. "CEO After†Tax Compensation Incentives and Corporate Tax Avoidance," Contemporary Accounting Research, John Wiley & Sons, vol. 31(4), pages 1077-1102, December.
    58. Badertscher, Brad A. & Katz, Sharon P. & Rego, Sonja O., 2013. "The separation of ownership and control and corporate tax avoidance," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 228-250.
    59. Wen, Wen & Cui, Huijie & Ke, Yun, 2020. "Directors with foreign experience and corporate tax avoidance," Journal of Corporate Finance, Elsevier, vol. 62(C).
    60. Lin Zhang & Yuehua Xu & Honghui Chen, 2022. "Do Returnee Executives Value Corporate Philanthropy? Evidence from China," Journal of Business Ethics, Springer, vol. 179(2), pages 411-430, August.
    61. Armstrong, Christopher S. & Blouin, Jennifer L. & Jagolinzer, Alan D. & Larcker, David F., 2015. "Corporate Governance, Incentives, and Tax Avoidance," Research Papers 2134, Stanford University, Graduate School of Business.
    62. A. Hong, Hyun & Lobo, Gerald J. & Ryou, Ji Woo, 2019. "Financial market development and firm investment in tax avoidance: Evidence from credit default swap market," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    63. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    64. Dane M. Christensen & Dan S. Dhaliwal & Steven Boivie & Scott D. Graffin, 2015. "Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance," Strategic Management Journal, Wiley Blackwell, vol. 36(12), pages 1918-1938, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kovermann, Jost & Velte, Patrick, 2019. "The impact of corporate governance on corporate tax avoidance—A literature review," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    2. Jiaojiao Qin & Jun Lin & Yan Xin, 2024. "Corporate tax avoidance: The impact of performance above aspiration and CEO experience," Asia Pacific Journal of Management, Springer, vol. 41(4), pages 2301-2331, December.
    3. Christofer Adrian & Mukesh Garg & Anh Viet Pham & Soon-Yeow Phang & Cameron Truong, 2023. "Do Natural Disasters Affect Corporate Tax Avoidance? The Case of Drought," Journal of Business Ethics, Springer, vol. 186(1), pages 105-135, August.
    4. García-Meca, Emma & Ramón-Llorens, Maria-Camino & Martínez-Ferrero, Jennifer, 2021. "Are narcissistic CEOs more tax aggressive? The moderating role of internal audit committees," Journal of Business Research, Elsevier, vol. 129(C), pages 223-235.
    5. Dongmin Kong & Yue Zhang & Ni Qin, 2025. "Anti-corruption campaign and corporate tax evasion: evidence from China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(1), pages 1-50, February.
    6. Fangjun Wang & Shuolei Xu & Junqin Sun & Charles P. Cullinan, 2020. "Corporate Tax Avoidance: A Literature Review And Research Agenda," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 793-811, September.
    7. Yukun Pan & Lin Liao & Daifei Yao & Joseph H. Zhang, 2024. "Board Chairs’ Early-Life Experience and Tax Avoidance," Journal of Business Ethics, Springer, vol. 192(4), pages 897-917, July.
    8. Wen, Wen & Cui, Huijie & Ke, Yun, 2020. "Directors with foreign experience and corporate tax avoidance," Journal of Corporate Finance, Elsevier, vol. 62(C).
    9. Ke Na & Wenjia Yan, 2022. "Languages and corporate tax avoidance," Review of Accounting Studies, Springer, vol. 27(1), pages 148-184, March.
    10. Ji-Hee Kim & Ji-Hwan Lee, 2021. "How CEO Political Connections Induce Corporate Social Irresponsibility: An Empirical Study of Tax Avoidance in South Korea," Sustainability, MDPI, vol. 13(14), pages 1-13, July.
    11. Shen, Yuxin & Xu, Hanwen & Yu, Shuangli & Xu, Wei & Shen, Yongjian, 2022. "Air pollution and tax avoidance: New evidence from China," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 402-420.
    12. Hanousek, Jan & Shamshur, Anastasiya & Tresl, Jiri, 2019. "Firm efficiency, foreign ownership and CEO gender in corrupt environments," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 344-360.
    13. Yang, Hao & Zhang, Qiusheng & Zhao, Xiaofang & Wang, Zhongchao, 2022. "Does political corruption affect mergers and acquisitions decisions? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 248-266.
    14. Shen, Huayu & Hou, Fei & Peng, Miaowei & Xiong, Hao & Zuo, Haohao, 2021. "Economic policy uncertainty and corporate tax avoidance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    15. Guangyong Lei & Wanwan Wang & Junli Yu & Kam C. Chan, 2022. "Cultural Diversity and Corporate Tax Avoidance: Evidence from Chinese Private Enterprises," Journal of Business Ethics, Springer, vol. 176(2), pages 357-379, March.
    16. Shen, Zhihan & Zhang, Ruipeng & Li, Peigong, 2024. "Local government debt and corporate tax avoidance: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 985-1000.
    17. Liu, Xiaoxia & Li, Minghui & Tong, Jamie Yixing & Zhang, Feida, 2022. "CFO gender and tax aggressiveness: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    18. McClure, Ross & Lanis, Roman & Wells, Peter & Govendir, Brett, 2018. "The impact of dividend imputation on corporate tax avoidance: The case of shareholder value," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 492-514.
    19. Jiang, Wei & Zhang, Cheng & Si, Chengyu, 2022. "The real effect of mandatory CSR disclosure: Evidence of corporate tax avoidance," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    20. Kelvin K. F. Law & Lillian F. Mills, 2017. "Military experience and corporate tax avoidance," Review of Accounting Studies, Springer, vol. 22(1), pages 141-184, March.

    More about this item

    Keywords

    Corruption; Tax avoidance; Bribery; Upper echelons theory;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • M16 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - International Business Administration

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:99:y:2025:i:c:s1057521925000043. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.