Governing Corporate Tax Management : The Role of State Ownership, Institutions and Markets in China

This excellent study of how alternative tax strategies work in China is an important contribution both to our understanding of corporate tax management in China and in other countries at a similar level of development. --Professor Dwight H. Perkins, Harvard University, USA This book presents a rigorous and in-depth study on the important topic of corporate tax management in the context of China, which makes it a highly valuable reading for policy makers, business leaders, and anyone who is interested in the performance of enterprises in China. --Professor Xiaolan Fu, Oxford University, United Kingdom This book focuses on corporate sector development in the context of transition economies, such as China. In doing so, the book uses quantitative methods to test several hypotheses that are salient to the Chinese economic situation. Topics covered in the book include the relationship between tax management and firm performance, the extent to which a short-term focus on tax management can lead to long-term vulnerabilities, the impact of government ownership on tax management impact, and the link between the co-evolution of marketization and corruption, and institutional change and tax management. With that the book offers rich empirical evidence to examine tax management, firm performance and corruption in a broad context, while permitting comparison between the Chinese experience and the market economies. Chen Zhang obtained her doctorate from the Institute of Graduate Studies, University of Malaya in 2017. She is currently Assistant Professor at Qingdao University, China. Rajah Rasiah obtained his doctorate in Economics from Cambridge University in 1992. He is the 2014 recipient of the Celso Furtado Prize from the World Academy of Sciences for advancing the frontiers of Social Science (Economics). He is currently Distinguished Professor of Economics at University of Malaya, Malaysia. Kee Cheok Cheong obtained his doctorate in Economics from the London School of Econom ics in 1972. He is currently Senior Research Fellow at the Institute of China Studies, and Senior Advisor, Asia Europe Institute, University of Malaya, Malaysia Preface 5 Contents 7 Symbols and Abbreviations 10 List of Figures 12 List of Tables 14 Chapter 1 Introduction 16 From Plan to Market 17 Ownership Reform 17 Institutional Reforms 18 Tax Reform 19 Corporate Taxation and Tax Management 23 Problematizing Corporate Tax Management 27 Methodology 29 Key Questions and Book Outline 29 References 31 Chapter 2 Corporate Tax Management and Chinese Enterprises 34 Introduction 34 Theoretical Considerations 34 Agency Theory 35 Bad News Hoarding Theory 36 Helping Hand and Grabbing Hand 37 Empirical Studies 39 Corporate Tax Management 39 Consequences of Corporate Tax Management 40 Specific Characteristics of China’s Enterprises 42 State Ownership 43 Corruption 45 Marketization 46 Research Gaps 48 Theoretical Framework 49 Analytical Framework 52 References 52 Chapter 3 Corporate Governance and Firm Performance 60 Introduction 60 Analytic Framework 61 Methodology and Data 64 Measures 64 Corporate Tax Management 64 Profitability Performance 65 Growth Performance 67 Market Performance 67 Model Specification 67 Data and Sampling 68 Statistical Modeling 69 Empirical Findings and Analysis 71 Measurement Model 71 Structural Model 73 Summary 76 References 77 Chapter 4 Economic Reforms and Market Outcomes over Time 83 Introduction 83 The China Context 86 Economic Reforms 86 Literature Review and Hypotheses Development 88 Methodology and Data 92 Sample and Data 92 Variables Used 95 Model Specification 96 Results and Analysis 98 Descriptive Statistics 98 Regression Results 101 Robustness Check for Endogeneity Problems 114 Chapter Summary 116 References 118 Chapter 5 Corruption, Institutions, and Markets 122 Introduction 122 Literature Review and Hypotheses Development 124 Data and Methodology 128 Sample and Data 128 Variables 129 Model Specification 132 Results and Analysis 135 Descriptive Statistics 135 Corruption and Corporate Tax Management 140 Moderating Effect of Institutional Support 144 Corporate Tax Management, Corruption, and Firm Performance 146 Chapter Summary 149 References 149 Chapter 6 Conclusions 154 Introduction 154 Synthesis of Findings 155 Implications for Theory 158 Implications for Policy 159 Implications for Firms 162 References 163 Appendix A: Measurement of Firm-Specific Earnings Management (Discacc) 165 Appendix B: The Impacts of Three Specific Dimensions of Marketization on the Relationship Between Corruption and Tax Management 167 References 171 Index 188 Front Matter ....Pages i-xvi Introduction (Chen Zhang, Rajah Rasiah, Kee Cheok Cheong)....Pages 1-18 Corporate Tax Management and Chinese Enterprises (Chen Zhang, Rajah Rasiah, Kee Cheok Cheong)....Pages 19-44 Corporate Governance and Firm Performance (Chen Zhang, Rajah Rasiah, Kee Cheok Cheong)....Pages 45-67 Economic Reforms and Market Outcomes over Time (Chen Zhang, Rajah Rasiah, Kee Cheok Cheong)....Pages 69-107 Corruption, Institutions, and Markets (Chen Zhang, Rajah Rasiah, Kee Cheok Cheong)....Pages 109-140 Conclusions (Chen Zhang, Rajah Rasiah, Kee Cheok Cheong)....Pages 141-151 Back Matter ....Pages 153-186 This book focuses on corporate sector development in the context of transition economies, such as China. In doing so, the book uses quantitative methods to test several hypotheses that are relevant to the Chinese economic situation. Topics covered in the book include the relationship between tax management and firm performance, the extent to which a short-term focus on tax management can lead to long-term vulnerabilities, the impact of government ownership on tax management impact, and the link between the co-evolution of marketization and corruption, and institutional change and tax management