Does tax avoidance information disclosure promote capital market pricing efficiency? Evidence from a quasi-natural experiment in China

Zheng Wu, Moyi Cheng, Bing Wang and Yi Zhao

Economic Analysis and Policy, 2025, vol. 87, issue C, 1612-1629

Abstract: We investigate how tax avoidance information disclosure shapes capital market pricing efficiency, using China's phased implementation of the country-by-country reporting (CbCR) regime as a quasi-natural experimental setting. Existing studies suggest that tax avoidance disclosure enhances transparency, but its impact on capital market efficiency remains underexplored. Using a staggered difference-in-differences (DID) approach, we find that tax avoidance disclosure significantly improves capital market pricing efficiency, especially in firms with standard unqualified audit opinions, higher R&D expenditures, more independent directors, and non-state-owned ownership. Mechanism analysis demonstrates that this effect arises from diminished tax evasion and improved information disclosure. The results indicate that the implementing of CbCR improves transparency, thereby mitigating information asymmetry and strengthening informational efficiency in capital markets. The study also offers policy insights for improving corporate transparency and tax regulation.

Keywords: Tax avoidance information disclosure; Country-by-country reporting; Capital market pricing efficiency (search for similar items in EconPapers)
JEL-codes: F68 G14 G38 H26 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:87:y:2025:i:c:p:1612-1629

DOI: 10.1016/j.eap.2025.07.021

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