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The Extreme Outcomes of Corporate Tax Management: Evidence from Chinese Listed Enterprises

Author

Listed:
  • Chen Zhang

    () (University of Malaya)

  • Ceong Kee Cheok,

    () (Institute of China Studies. University of Malaya)

  • Rajah Rasiah

    () (University of Malaya)

Abstract

This study presents an empirical analysis of how corporate tax management and government ownership influence a firm’s stock price crash risk. The study investigates firm-specific stock price crash to corporate tax management based on a sample of Chinese listed enterprises during 2008 to 2013 period and finds that tax management activities can lead to a significant decline in short-term crash risk. However, the results show that tax management would lead to the high probability of future crash risk, which is consistent with agency conflict between management and shareholders. Because of the opacity and complexity of tax management, there exists opportunities for short-term rentseeking which can lead to future crashes. In addition, the study finds that the positive relationship between tax management and future crash risk is more pronounced in enterprises controlled by the municipal government.

Suggested Citation

  • Chen Zhang & Ceong Kee Cheok, & Rajah Rasiah, 2018. "The Extreme Outcomes of Corporate Tax Management: Evidence from Chinese Listed Enterprises," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 10(1), pages 19-52, January.
  • Handle: RePEc:umk:journl:v:10:y:2018:i:1:p:19-52
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    File URL: https://ijie.um.edu.my/index.php/ijie/article/view/9552/6751
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    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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