Political Status and Tax Haven Investment of Emerging Market Firms: Evidence from China

Ziliang Deng (), Jiayan Yan () and Pei Sun ()
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Ziliang Deng: Renmin University of China
Jiayan Yan: Renmin University of China
Pei Sun: Fudan University

Journal of Business Ethics, 2020, vol. 165, issue 3, No 7, 469-488

Abstract: Abstract Tax haven investment has become an increasingly important topic in business ethics. Given the considerable tax haven investments from emerging market firms, understanding how home-country institutions shape their investments in tax havens is theoretically intriguing and practically crucial. By integrating resource dependence and institutional theories, we hypothesize the existence of a negative relationship between firms’ home-country political status and tax haven investment. State-owned enterprises (SOEs) controlled by the central government dominate the political hierarchy. Compared with other types of enterprises, central SOEs receive the strongest institutional support and are the most prone to institutional oversight, thereby exhibiting the weakest tendency to invest in tax havens. This top group is followed by SOEs controlled by local governments, politically connected private firms, and private firms without political connections. These groups exhibit an increasing tendency to invest in overseas tax havens. The empirical analysis of Chinese listed firms during 2003–2013 supports our hypotheses. This research contributes to the business ethics literature by identifying institutional drivers of overseas tax haven investment by emerging market firms, thereby adding to the ethical debate on international tax avoidance.

Keywords: Tax avoidance; Tax haven; Political status; Resource dependence theory; Institutional theory; Emerging market; China (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s10551-018-4090-0

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