Logo image
Back
How Internal Control Protects Shareholders' Welfare: Evidence from Tax Avoidance in China
Journal article

How Internal Control Protects Shareholders' Welfare: Evidence from Tax Avoidance in China

Hsihui Chang, Xin Dai, Yurun He and Maolin Wang
Journal of international accounting research, v 19(2)
01 Jun 2020
DOI: https://doi.org/10.2308/jiar-19-046

Abstract

Business & Economics Business, Finance Social Sciences
This paper investigates how effective internal control protects shareholders' welfare in the context of corporate tax avoidance. Prior literature documents a positive association between internal control weakness and low tax avoidance. In this paper, we re-examine this association and complement prior research by finding that the direction of the association between internal control and tax avoidance depends on the level of tax avoidance. Specifically, for firms with low (high) levels of tax avoidance, internal control quality is positively (negatively) associated with tax avoidance. In additional analyses, we further explore how internal control mitigates agency costs for state-owned enterprises and tunneling activities. We show that for state-owned enterprises, which have lower incentives to avoid tax, effective internal control prevents managers from paying more taxes to cater to the controlling shareholders' interests. We also find that the association between tax avoidance and tunneling is reduced by effective internal control systems.

Metrics

25 Record Views
17 citations in Web of Science
18 citations in Scopus

Details

InCites Highlights

Data related to this publication, from InCites Benchmarking & Analytics tool:

Collaboration types
Domestic collaboration
International collaboration
Web of Science research areas
Business, Finance
Logo image