Long live the walking dead? Corporate tax avoidance and zombie firms in China

Changrong Wang, Grant Richardson and Yanming Cao

The British Accounting Review, 2024, vol. 56, issue 3

Abstract: This study examines the impact of corporate tax avoidance on zombie firms in China. Using a sample of 17,717 firm-year observations over the 2010–2019 period, we find a negative and statistically significant association between tax avoidance and zombie firms after controlling for financial constraints. We also divide the zombie firms in our sample into state-owned enterprise (SOE) and non-SOE subsamples and observe that the tax avoidance effect is stronger in the SOE subsample. Our baseline results are robust to endogeneity concerns and alternative measures of zombie firms, tax avoidance, and financial constraints. Moreover, we perform a heterogeneity test to understand better the impact of CEO political connections on the negative association between corporate tax avoidance and zombie firms. We find that CEO political connections magnify this association. Finally, we identify information opacity as a mechanism that explains the negative association between tax avoidance and zombie firms. Overall, the findings of this study improve our understanding of the determinants of zombie firms and the consequences of corporate tax avoidance.

Keywords: Zombie firms; Corporate tax avoidance; Political connections; Information opacity (search for similar items in EconPapers)
JEL-codes: G32 G34 H26 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:56:y:2024:i:3:s0890838924000192

DOI: 10.1016/j.bar.2024.101319

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