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From bonds to boundaries: Bond market liberalization and corporate tax avoidance in China

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  • Zhang, Ruixuan
  • Ge, Yiyun

Abstract

In a quasi-natural experimental setting where the Bond Connect program allows foreign creditors to trade in China’s interbank bond market, we hypothesize and find that firms affected by the program exhibit lower levels of tax avoidance. Channel analyses suggest that foreign creditors curb corporate tax avoidance by alleviating firms’ financing constraints, enhancing issuer credit ratings and strengthening internal governance. Heterogeneity analyses show that the observed effects are more pronounced for state-owned enterprises and for firms issuing long-maturity bonds. Moreover, further tests indicate that bond market liberalization not only enhances firm value but also reduces operating risk, reinforcing its overall role in promoting disciplined corporate behavior.

Suggested Citation

  • Zhang, Ruixuan & Ge, Yiyun, 2026. "From bonds to boundaries: Bond market liberalization and corporate tax avoidance in China," Finance Research Letters, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finlet:v:89:y:2026:i:c:s1544612325024791
    DOI: 10.1016/j.frl.2025.109230
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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