How Aggressive Tax Planning Facilitates the Diversion of Corporate Resources: Evidence from Path Analysis

• 成果类型: Article
• 署名作者: Bauer, Andrew M.; Fang, Junxiong; Pittman, Jeffrey; Zhang, Yinqi; Zhao, Yuping
• 署名单位: University of Waterloo; Fudan University; Memorial University Newfoundland; American University; University of Houston System; University of Houston
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12563
• 发表日期: 2020
• 页码: 1882-1913
• 关键词: agency costs; political connections; financial constraints; earnings management; empirical-analysis; avoidance; cash; incentives; OWNERSHIP; firm

摘要

In measuring tunneling with intercorporate loans disclosed by Chinese listed companies, we analyze the underlying channels through which aggressive tax planning facilitates the diversion of corporate resources by firm insiders. Using path analysis, we document that the path from tax aggressiveness to related loans is mediated by both the additional cash flows from tax savings and the increased financial opacity from tax planning, and that additional cash flows plays a much more important role than opacity in helping controlling shareholders to divert corporate resources under the guise of tax aggressiveness. Beyond the two mediated paths, we also detect a residual, direct path from tax aggressiveness to related loans. After an exogenous shock from the government crackdown on diversionary related loans, we find the direct path is fully mediated by the two indirect paths, suggesting that tunneling via related loans only occurs at firms where insiders can mask tunneling under the cover of opacity or can justify related loans on grounds of abnormal cash flows from tax savings. Our evidence supports the notion that greater outside scrutiny increases the hurdle for, but does not entirely eradicate, diversion facilitated by tax aggressiveness. Collectively, our research lends some support to recent theory on the importance of taxes to corporate governance by demonstrating how the agency costs of tax planning allow certain shareholders to benefit from firm activities at the expense of others.