Title

Tax avoidance and tunneling : empirical analysis from an agency perspective

Document Type

Journal article

Source Publication

Journal of International Accounting Research

Publication Date

Fall 2016

Volume

15

Issue

3

First Page

49

Last Page

66

Publisher

American Accounting Association

Keywords

tax avoidance, tunneling, firm value, principal-principal agency conflicts

Abstract

Taking advantage of the agency conflicts between controlling shareholders and minority shareholders and the weak corporate governance in a transition economy, we investigate the relationship between tax avoidance (proxied by effective tax rates) and tunneling (proxied by related-party lending) from a principal-principal agency perspective. We find that corporate tax avoidance is positively associated with tunneling after controlling for firm characteristics, corporate governance, and institutional factors that affect tunneling. This relationship is more pronounced for firms with cash shortages and in periods with relatively weak investor protection. In addition, the value-enhancing implications of tax avoidance are reduced for firms in which tax avoidance is highly correlated with tunneling. By demonstrating the existence of tunneling-related tax avoidance and its economic consequences, this study sheds light on the emerging agency perspective on tax avoidance.

DOI

10.2308/jiar-51345

Print ISSN

15426297

E-ISSN

15588025

Funding Information

Professors Chan and Mo acknowledge partial financial support from Lingnan University (Project No. DR15A2 and HKIBS) and the City University of Hong Kong (Project No. 7004111), respectively. Professor Tang acknowledges the research funding provided by The University of British Columbia. {DR15A2, 7004111}

Publisher Statement

Copyright © 2016 American Accounting Association. All rights reserved. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Language

English

Recommended Citation

Chan, K. H., Mo, P. L. L. & Tang, T. (2016). Tax avoidance and tunneling: empirical analysis from an agency perspective. Journal of International Accounting Research, 15(3), 49-66. doi: 10.2308/jiar-51345

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