Tax Enforcement as a Corporate Governance Mechanism: Empirical Evidence from China

Weichu Xu · Yamin Zeng · Junsheng Zhang

117 citations0/0 files storedCorporate Governance An International Review

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Corporate Finance and Governance Taxation and Compliance Studies Corporate Taxation and Avoidance

Abstract

Manuscript Type: Empirical Research Question/Issue: This study first measures tax enforcement efforts for 35 tax regions within China, then analyzes the role of tax enforcement as a corporate governance mechanism by examining whether regional tax enforcement efforts reduce two types of agency costs in Chinese listed firms. Research Findings/Insights: Using archival data from a pooled sample of 917 listed firms with total 3,668 observations from 2003 to 2006 in China, we find the following results: (1) regional tax enforcement efforts reduce corporate agency costs between shareholders and managers and agency costs between blockholders and minority shareholders; (2) by reducing two kinds of agency costs, tax enforcement efforts improve a firm's market performance; and (3) the governance role of tax enforcement efforts is more significant for state-controlled firms than for entrepreneur-controlled firms. Theoretical/Academic Implications: This study suggests that tax enforcement can act as a corporate governance mechanism. Tax authorities not only have the ability to increase national tax revenue, but also play a positive role in decreasing agency costs, including agency costs between shareholders and managers and those between block shareholders and minority shareholders. Practitioner/Policy Implications: This study offers a new insight to policy makers interested in transforming economies that corporate governance build-up should be multidimensional. Besides the traditionally internal governance mechanisms represented by boards of directors and external governance mechanisms represented by takeover markets, tax enforcement is also an important corporate governance mechanism. The enforcement power of tax authorities could be better utilized to supervise firm operations in emerging markets.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 117 citations exist upstream.

References

1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1986Large Shareholders and Corporate Control 1984Financial Intermediation and Delegated Monitoring 1933The Modern Corporation and Private Property 1981The relationship between return and market value of common stocks 2003Earnings Management through Real Activities Manipulation 2002Investor Protection and Corporate Valuation 2003The great reversals: the politics of financial development in the twentieth century

Cited by

2020Corporate governance and institutions—A review and research agenda 2014How much can we trust the financial report?2021The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance 2021Industry and geographic peer effects on corporate tax avoidance: Evidence from China 2021Mixed ownership reform and corporate tax avoidance: Evidence of Chinese listed firms 2023Robot adoption and enterprise R&D manipulation: Evidence from China

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.