 Financial market opening and corporate tax avoidance: Evidence from staggered quasi-natural experimentsYunsen Chen, Jianqiao Huang, Xiao Li and Xiaoran Ni Finance Research Letters, 2023, vol. 54, issue C Abstract: This paper examines whether financial market opening, as introduced by the staggered launches of the Stock Connect programs between China's mainland and Hong Kong, affects corporate tax avoidance. Using a difference-in-differences approach, we find that the financial market opening significantly reduces tax avoidance behavior in Chinese A-share listed companies. In addition, we find that the observed effects are more prominent in firms that experience increased foreign institutional ownership following regulatory changes, and in firms with ex-ante weaker external monitoring and stronger external financing needs. These results are consistent with our hypothesis that financial market opening affects corporate tax avoidance through improved governance and reduced external financing costs. We further find that financial market opening decreases capital costs. Overall, our findings indicate that the opening of emerging financial markets to foreign investors is crucial for curtailing opportunistic tax avoidance by local firms. Keywords: Financial market opening; Tax avoidance; Corporate governance; Stock connect (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001435 DOI: 10.1016/j.frl.2023.103770 Access Statistics for this article Finance Research Letters is currently edited by R. Gençay More articles in Finance Research Letters from Elsevier |
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