Market liberalization and tax avoidance: Evidence from the Shanghai-Hong Kong Stock Connect Program in China

Dequan Jiang, Weiping Li, Yongjian Shen and Zhenye Yao

Economic Systems, 2020, vol. 44, issue 3

Abstract: This study employs two market liberalization programs in China, the Shanghai-Hong Kong Stock Connect (SHSC) program and the Shenzhen-Hong Kong Stock Connect (SZHSC) program, as an exogenous shock to stock market liberalization to explore the impact of market liberalization on tax avoidance. By employing the staggered difference-in-difference regression on Chinese listed firms, we found that market liberalization reduces tax avoidance by approximately 13.1%. This result is robust under parallel trend examination, falsification test, alternative regression methodology, and different measurements for tax avoidance. Additionally, this effect is greater for non-state-owned firms and for firms that have less external monitoring, higher information asymmetry, and stronger financial constraints.

Keywords: Market liberalization; Shanghai-Hong Kong Stock Connect program; Shenzhen-Hong Kong Stock Connect program; Tax avoidance (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:44:y:2020:i:3:s093936251830462x

DOI: 10.1016/j.ecosys.2020.100811

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