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Earnings pressure and strategic tax avoidance: Micro evidence based on listed corporations’ subsidiaries

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  • Chen, Huangyue
  • Zhao, Yang

Abstract

This paper examines the relationship between earnings pressure and tax avoidance behavior among managers striving to meet earnings expectations, using the context of listed corporations’ subsidiaries. Using data on the subsidiaries of Chinese A-share listed companies, this study finds that subsidiaries engage in greater tax avoidance under earnings pressure, suggesting that managers may increase tax avoidance to maximize the retention of economic benefits within the company to meet capital market expectations. Further analysis reveals that this impact is reduced when subsidiaries are not major taxpayers, fall under the jurisdiction of the national tax bureau, are in regions with lower tax enforcement capacity, or are located in regions with high fiscal pressure. These findings indicate that listed companies engage in strategic tax avoidance through their subsidiaries. This study does not find evidence of book-tax conforming tax avoidance, suggesting that book-tax non-conforming tax avoidance is more likely employed. This research extends the literature on corporate strategic behavior under external pressures and provides important insights for academia, regulators, and policymakers.

Suggested Citation

  • Chen, Huangyue & Zhao, Yang, 2026. "Earnings pressure and strategic tax avoidance: Micro evidence based on listed corporations’ subsidiaries," Research in International Business and Finance, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:riibaf:v:81:y:2026:i:c:s0275531925004751
    DOI: 10.1016/j.ribaf.2025.103219
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