Banking liberalization and corporate tax planning: Evidence from natural experiments

Shenglan Chen, Hui Ma, Haimeng Teng, Qiang Wu

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

This paper investigates whether banking liberalization affects corporate tax planning by exploiting China's two interest rate deregulations as quasi-natural experiments. We find that firms reduce their level of tax avoidance following banking liberalization and that the identified effect is concentrated in firms with more bank borrowing after liberalization, firms located in non-financial centers, as well as non-SOE firms and firms with fewer political connections. In addition, we find that firms reduce their use of related party transactions and tax-related bribery after banking liberalization. Our results suggest that firms engage in less tax avoidance with more available/cheaper external financial resources and that, on average, the costs of engaging in tax avoidance are higher than the costs of borrowing from banks.

Original languageEnglish (US)
Article number102264
JournalJournal of Corporate Finance
Volume76
DOIs
StatePublished - Oct 2022

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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