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Industry and geographic peer effects on corporate tax avoidance: Evidence from China

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  • Liang, Quanxi
  • Li, Qiumei
  • Lu, Meiting
  • Shan, Yaowen

Abstract

This study examines industry and geographic peer effects on tax avoidance as well as their mechanisms and economic consequences in an emerging market, China. Using an instrumental variable approach and after considering a variety of robustness tests, we document causal evidence that a firm’s degree of tax avoidance is positively affected by the average degree of tax avoidance of its peer firms in the same industry or province. Further analyses show that both industry and geographic peer effects are driven by the motives of information learning and market competition and depend on the degree of local tax enforcement and executive tax expertise. We also document preliminary evidence that both industry and geographic peer effects benefit firms by improving their investments, dividend payouts, and future performance.

Suggested Citation

  • Liang, Quanxi & Li, Qiumei & Lu, Meiting & Shan, Yaowen, 2021. "Industry and geographic peer effects on corporate tax avoidance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
  • Handle: RePEc:eee:pacfin:v:67:y:2021:i:c:s0927538x21000524
    DOI: 10.1016/j.pacfin.2021.101545
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    More about this item

    Keywords

    Tax avoidance; peer effects; information learning; market competition;
    All these keywords.

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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