Corporate Tax Benefits from Hometown-Connected Politicians

• 成果类型: Article
• 署名作者: Cao, Chunfang; Cheng, C. S. Agnes; Xia, Changyuan; Xie, Jing; Zeng, Cheng (Colin)
• 署名单位: Sun Yat Sen University; University of Oklahoma System; University of Oklahoma - Norman; Southwestern University of Finance & Economics - China; University of Macau; Hong Kong Polytechnic University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2020-0162
• 发表日期: 2024
• 页码: 59-86
• 关键词: PLACE ATTACHMENT; financial constraints; earnings management; social ties; IDENTITY; ECONOMICS; incentives; favoritism; INFORMATION; performance

摘要

This study examines whether politicians exhibit hometown favoritism in assigning preferential corporate income tax rates. We find that firms with hometown connections to incumbent provincial leaders experience favorable tax treatment. This effect is more pronounced when those leaders have strong hometown preferences and weaker when they have a strong incentive to seek promotion, suggesting that social incentives are the primary drivers of the effects on corporate tax benefits of hometown favoritism by politicians. Moreover, this effect is intensified when members of senior management have personal connections with the provincial leader. The mechanism test reveals that the provincial governments tend to qualify connected firms for preferential tax policies under their jurisdictions. Overall, our results suggest that hometown favoritism by politicians promotes tax benefits for business entities.