Forecasting disorientation in the tax avoidance map: Tax haven subsidiaries and analyst forecasts

Long Jin, Changchun Pan and Yuzhe Huang

International Review of Financial Analysis, 2024, vol. 96, issue PA

Abstract: In the context of economic globalization, China has actively encouraged its enterprises to “Go Global” to enhance their core competitiveness. However, in recent years, many companies have been drawn to the unique features of tax havens, establishing subsidiary in these regions to exploit regulatory and institutional arbitrage rather than focusing on genuine production and operations. This study uses panel data from Chinese listed companies from 2007 to 2022 to investigate the impact of tax haven subsidiary layout on analyst forecast accuracy and the underlying mechanisms. Our findings show that tax haven subsidiary layout significantly reduces analyst forecast accuracy. This negative effect is primarily driven by increased information asymmetry and heightened operational risks caused by tax haven subsidiary layout. Moreover, the impact is more pronounced in firms with higher controlling shareholder tunneling, lower media attention, stronger product market competition, and weaker tax enforcement. Our research contributes to a deeper understanding of the adverse effects of tax haven subsidiary layout, offering crucial insights for promoting efficient capital flow and sustainable economic development in emerging markets.

Keywords: Tax haven subsidiary layout; Analyst forecast accuracy; Information asymmetry; Operational risk (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924005933

DOI: 10.1016/j.irfa.2024.103661

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