Pyramid ownership structure and tax avoidance among Canadian firms

Justin Mindzak and Tao Zeng

Accounting Research Journal, 2019, vol. 33, issue 1, 16-33

Abstract: Purpose - This paper aims to examine the relationship between pyramid ownership structure and tax avoidance. Design/methodology/approach - This paper is an empirical work using a sample of Canadian listed firms. Findings - Relying on several proxies for tax avoidance, the authors find that firms affiliated with pyramidal structures generally engage in more tax avoidance activities than non-affiliated firms; firms affiliated with more complex pyramids engage in more tax avoidance practices and firms located at the lower tiers of the pyramids avoid more taxes; and some pyramid-affiliated firms with larger deviation between controlling shareholders’ cash flow rights and control rights engage in more tax avoidance practices. Social implications - A broader understanding of the relationship between pyramidal structure and tax avoidance can be pursued by including firms in other countries, where the pyramid groups (pyramid structure) are prevalent, but institutional environments differ from that of Canada. Originality/value - This study highlights the importance of pyramid ownership in shaping tax avoidance activities among Canadian-listed firms. Canada provides an ideal setting for studying the impact of ownership structure, as it contains a diverse corporate ownership structure ranging from widely held freestanding firms to pyramidal business groups.

Keywords: Tax avoidance; Effective tax rate; Book-tax difference; Cash flow rights; Control rights; Pyramid ownership structure (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arjpps:arj-02-2017-0036

DOI: 10.1108/ARJ-02-2017-0036

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