IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v88y2024ics0927538x24003226.html
   My bibliography  Save this article

Country-by-Country reporting, corporate tax avoidance, and supply chain structure: A bunching analysis based on income manipulation by Chinese multinational corporations

Author

Listed:
  • Bai, Sida
  • Zheng, Jiaxing

Abstract

Due to the endogeneity issue arising from the voluntary manipulation of MNCs own operating income, we employed bunching analysis to investigate the impact of Country-by-Country reporting(CbCR) on tax avoidance behavior of Chinese multinational corporations. The study found that multinational corporations' operating income exhibited bunching at 5.5 billion RMB. Within the bunching interval, the distribution of actual-value enterprises was 111 % higher than that of counterfactual enterprises, with an elasticity of 0.0359. Tax avoidance by multinational corporations significantly decreased within the manipulation interval, leading to a noticeable increase in taxable amounts. A series of robustness tests confirmed the validity of the above conclusions. This suggests that CbCR could serve as an important policy tool to combat tax base erosion and profit shifting. Furthermore, CbCR led Chinese multinational corporations to increase their investment scale while reducing profit shifting, but also resulted in a decrease in employment and a more concentrated supply chain structure. Careful evaluation is needed regarding the future expansion of the scope and target users of CbCR.

Suggested Citation

  • Bai, Sida & Zheng, Jiaxing, 2024. "Country-by-Country reporting, corporate tax avoidance, and supply chain structure: A bunching analysis based on income manipulation by Chinese multinational corporations," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24003226
    DOI: 10.1016/j.pacfin.2024.102570
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X24003226
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.pacfin.2024.102570?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. Verena K. Dutt & Christopher A. Ludwig & Katharina Nicolay & Heiko Vay & Johannes Voget, 2019. "Increasing tax transparency: investor reactions to the country-by-country reporting requirement for EU financial institutions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(6), pages 1259-1290, December.
    2. Daron Acemoglu & Ufuk Akcigit & William Kerr, 2016. "Networks and the Macroeconomy: An Empirical Exploration," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 273-335.
    3. Jie Jian & Yu Guo & Lin Jiang & Yanyan An & Jiafu Su, 2019. "A Multi-Objective Optimization Model for Green Supply Chain Considering Environmental Benefits," Sustainability, MDPI, vol. 11(21), pages 1-20, October.
    4. Rucsandra Moldovan, 2014. "Post-Implementation Reviews for IASB and FASB Standards: A Comparison of the Process and Findings for the Operating Segments Standards," Accounting in Europe, Taylor & Francis Journals, vol. 11(1), pages 113-137, June.
    5. Michael Carlos Best & Henrik Jacobsen Kleven, 2018. "Housing Market Responses to Transaction Taxes: Evidence From Notches and Stimulus in the U.K," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 157-193.
    6. Zhao Chen & Zhikuo Liu & Juan Carlos Suárez Serrato & Daniel Yi Xu, 2021. "Notching R&D Investment with Corporate Income Tax Cuts in China," American Economic Review, American Economic Association, vol. 111(7), pages 2065-2100, July.
    7. Preetika Joshi, 2020. "Does Private Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from BEPS Action Item 13," Journal of Accounting Research, Wiley Blackwell, vol. 58(2), pages 333-381, May.
    8. Preetika Joshi & Edmund Outslay & Anh Persson & Terry Shevlin & Aruhn Venkat, 2020. "Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2357-2397, December.
    9. Martin Jacob, 2022. "Real Effects of Corporate Taxation: A Review," European Accounting Review, Taylor & Francis Journals, vol. 31(1), pages 269-296, January.
    10. Dutt, Verena K. & Spengel, Christoph & Vay, Heiko, 2021. "The EU proposal for country-by-country reporting on the internet: Costs, Benefits and Consequences," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 250025, March.
    11. Rebecca Diamond & Petra Persson, 2016. "The Long-term Consequences of Teacher Discretion in Grading of High-stakes Tests," NBER Working Papers 22207, National Bureau of Economic Research, Inc.
    12. Johannesen, Niels & Larsen, Dan Thor, 2016. "The power of financial transparency: An event study of country-by-country reporting standards," Economics Letters, Elsevier, vol. 145(C), pages 120-122.
    13. Eberhartinger, Eva & Speitmann, Raffael & Sureth-Sloane, Caren, 2020. "Real effects of public country-by-country reporting and the firm structure of European banks," arqus Discussion Papers in Quantitative Tax Research 255, arqus - Arbeitskreis Quantitative Steuerlehre.
    14. Ole-Kristian Hope & Tony Kang & Wayne B Thomas & Florin Vasvari, 2009. "The effects of SFAS 131 geographic segment disclosures by US multinational companies on the valuation of foreign earnings," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(3), pages 421-443, April.
    15. Hope, Ole-Kristian & Thomas, Wayne B. & Winterbotham, Glyn, 2009. "Geographic earnings disclosure and trading volume," Journal of Accounting and Public Policy, Elsevier, vol. 28(3), pages 167-188, May.
    16. Juan Carlos Suárez Serrato, 2018. "Unintended Consequences of Eliminating Tax Havens," NBER Working Papers 24850, National Bureau of Economic Research, Inc.
    17. Dutt, Verena & Spengel, Christoph & Vay, Heiko, 2021. "Der EU-Vorschlag zum Country-by-Country Reporting im Internet: Kosten, Nutzen, Konsequenzen," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 250010, March.
    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. Müller, Raphael & Spengel, Christoph & Weck, Stefan, 2021. "How do investors value the publication of tax information? Evidence from the European public country-by-country reporting," ZEW Discussion Papers 21-077, ZEW - Leibniz Centre for European Economic Research.
    2. Dutt, Verena & Spengel, Christoph & Vay, Heiko, 2021. "Der EU-Vorschlag zum Country-by-Country Reporting im Internet: Kosten, Nutzen, Konsequenzen," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 250010, March.
    3. Longo, Sara & Fabrizi, Michele & Parbonetti, Antonio, 2025. "Market reaction to EU CRD IV regulation in the banking industry," Research in International Business and Finance, Elsevier, vol. 73(PB).
    4. Müller, Raphael & Spengel, Christoph & Vay, Heiko, 2020. "On the determinants and effects of corporate tax transparency: Review of an emerging literature," ZEW Discussion Papers 20-063, ZEW - Leibniz Centre for European Economic Research.
    5. Dutt, Verena K. & Nicolay, Katharina & Spengel, Christoph, 2021. "Reporting behavior and transparency in European banks' country-by-country reports," ZEW Discussion Papers 21-019, ZEW - Leibniz Centre for European Economic Research.
    6. Dutt, Verena K. & Spengel, Christoph & Vay, Heiko, 2021. "The EU proposal for country-by-country reporting on the internet: Costs, Benefits and Consequences," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 250025, March.
    7. De Simone, Lisa & Klassen, Kenneth J. & Seidman, Jeri K., 2022. "The effect of income-shifting aggressiveness on corporate investment," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    8. Raphael Müller & Johannes Voget & Jan Zental, 2024. "The Effects of Mandatory Private Disclosure On Public Disclosure—Evidence from CbCR," Schmalenbach Journal of Business Research, Springer, vol. 76(4), pages 533-571, December.
    9. Sarah Godar & Giulia Aliprandi & Tommaso Faccio & Petr Janský & Katia Toledo Ruiz, 2024. "The long way to tax transparency: lessons from the early publishers of country-by-country reports," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 593-634, April.
    10. Giulia Aliprandi & Kane Borders, 2024. "Advancing Corporate Tax Transparency," PSE-Ecole d'économie de Paris (Postprint) halshs-04947447, HAL.
    11. repec:ces:ifowps:_2020 is not listed on IDEAS
    12. Göttsche, Max & Habermann, Florian & Sieber, Sebastian, 2024. "The materiality of non-financial tax disclosure: Experimental evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    13. Elayan, Fayez A. & Pacharn, Parunchana & Li, Jennifer & Brown, Kareen & Chen, Yijia, 2023. "The market response to mandatory disclosure of payments to foreign governments," The British Accounting Review, Elsevier, vol. 55(6).
    14. Subagio Efendi & Salim Darmadi & Robert Czernkowski, 2022. "Are Financial Institutions Tax Aggressive? Evidence From Corporate Tax Return Data," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(2), pages 175-204, August.
    15. Tang, Wenliang & Yang, Mian & Duan, Hongbo, 2023. "Temperature and corporate tax avoidance: Evidence from Chinese manufacturing firms," Energy Economics, Elsevier, vol. 117(C).
    16. Marx Benjamin M., 2024. "Dynamic Bunching Estimation with Panel Data," Journal of Econometric Methods, De Gruyter, vol. 13(2), pages 225-249.
    17. Hope, Ole-Kristian & Ma, Mark (Shuai) & Thomas, Wayne B., 2013. "Tax avoidance and geographic earnings disclosure," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 170-189.
    18. Laudage, Sabine, 2023. "The BEPS Project: Achievements and remaining challenges," IDOS Policy Briefs 22/2023, German Institute of Development and Sustainability (IDOS), Bonn.
    19. Katarzyna Anna Bilicka & Elisa Casi & Carol Seregni & Barbara Stage, 2021. "Tax Strategy Disclosure: A Greenwashing Mandate?," CESifo Working Paper Series 9030, CESifo.
    20. Jonathan Gruber & Thomas P. Hoe & George Stoye, 2023. "Saving Lives by Tying Hands: The Unexpected Effects of Constraining Health Care Providers," The Review of Economics and Statistics, MIT Press, vol. 105(1), pages 1-19, January.
    21. Philippe Aghion & Maxime Gravoueille & Matthieu Lequien & Stefanie Stantcheva, 2017. "Tax Simplicity or Simplicity of Evasion? Evidence from Self-Employment Taxes in France," NBER Working Papers 24049, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    CbCR; Chinese multinational corporations; Operating income manipulation; Effective tax rate; supply chain structure;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    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:pacfin:v:88:y:2024:i:c:s0927538x24003226. 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/pacfin .

    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.