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    Let's get connected: The effect of directors connected to a tax office on corporate tax avoidance in China

    Access Status
    In process
    Authors
    Zhao, C.X.
    Meng, Leah
    Taylor, Grantley
    Richardson, G.
    Date
    2020
    Type
    Journal Article
    
    Metadata
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    Citation
    Zhao, C.X. and Meng, L. and Taylor, G. and Richardson, G. 2020. Let's get connected: The effect of directors connected to a tax office on corporate tax avoidance in China. Journal of Accounting and Public Policy.
    Source Title
    Journal of Accounting and Public Policy
    DOI
    10.1016/j.jaccpubpol.2020.106817
    ISSN
    0278-4254
    Faculty
    Faculty of Business and Law
    School
    School of Accounting, Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/82378
    Collection
    • Curtin Research Publications
    Abstract

    © 2020 Elsevier Inc. This study examines the effect of directors connected to a tax office on corporate tax avoidance in China. We find a significant positive association between directors connected to a tax office and tax avoidance after controlling for general political connections and other determinants of tax avoidance. Our result is robust to several endogeneity concerns. Additional analysis shows that it is the direct effect of tax office connected directors which drives the association with tax avoidance, rather than the indirect effect of general political connections. We also observe that significant tax savings are achieved when the tax connected directors of a firm previously worked in the same tax office which is currently and officially responsible for the firm's tax payments. Moreover, we find that when a director has acquired local tax office political power in the same province where the firm's head office is located, this leads to substantial tax savings. Finally, we observe that our main result is more pronounced when tax enforcement is low. Overall, our findings are consistent with the revolving door hypothesis.

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