Hua Feng, Ahsan Habib and Gao liang Tian
The purpose of this paper is to investigate the association between aggressive tax planning and stock price synchronicity.
Abstract
Purpose
The purpose of this paper is to investigate the association between aggressive tax planning and stock price synchronicity.
Design/methodology/approach
Employing the special institutional background of China, this study constructs tax aggressiveness and stock price synchronicity measures for a large sample of Chinese stocks spanning the period 2003–2015. The authors employ OLS regression as the baseline methodology, and a fixed effect model, the Fama–Macbeth method and GMM as sensitivity checks. Matched samples and difference-in-difference analyses are used to control for endogeneity.
Findings
The authors find a significant and positive association between aggressive tax planning and stock price synchronicity. Because material information about risky tax transactions tends to be hidden in various tax accruals accounts, aggressive tax strategies make financial statements less transparent, thereby, increasing information asymmetry and decreasing stock price informativeness. The authors also find that the firms engaging in aggressive tax planning exhibit relatively high corporate opacity. In addition, the authors find that improvements in the tax enforcement regime, ownership status and high-quality auditors all constrain the adverse effects of tax aggressiveness.
Practical implications
This study has important practical implications for China’s regulators, who are striving to reduce the tax burden of enterprises. It also helps investors to consider investment decisions more appropriately from a taxation perspective.
Originality/value
First, this paper contributes to the stock price efficiency literature by identifying the effect of a hitherto unexamined factor, namely, firm-level aggressive tax planning, on the efficiency of stock prices. Second, this study provides further empirical evidence to support the agency view of tax aggressiveness, and the informational interpretation of stock price synchronicity. Third, this study helps us better understand the effects of firm-level tax policy on firm-specific information capitalization in an environment where overall country-level investor protection is relatively weak.
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Radwan Hussien Alkebsee, Gao-Liang Tian, Muhammad Usman, Muhammad Abubakkar Siddique and Adeeb A. Alhebry
This study aims to investigate whether the presence of female directors on audit committees affects audit fees in Chinese listed companies. This study also investigates whether…
Abstract
Purpose
This study aims to investigate whether the presence of female directors on audit committees affects audit fees in Chinese listed companies. This study also investigates whether the audit committee’s gender diversity moderates the relationship between the firm’s inherent situational factors (e.g. audit complexity and firm risk) and audit fees. Finally, this study investigates whether the effect of the audit committee’s gender diversity on audit fees varies with within-country institutional contingencies (e.g. state-owned enterprises [SOEs] vs non-SOEs and firms that are located in more developed regions vs firms that are located in less developed regions)
Design/methodology/approach
This study used the data of all A-share listed companies on the Shanghai and Shenzhen stock exchanges for the period from 2009 to 2015. The authors use ordinary least squares regression as a baseline methodology, along with firm fixed effect, Deference in Deference method, two-stage least squares regression, two-stage Heckman model and generalized method of moments models to control for the possible issue of endogeneity.
Findings
The study’s findings suggest that the presence of female directors on the audit committee improves internal monitoring and communication, which reduce the perceived audit risk and the need for assurances from external auditors. The results also suggest that female directors demand high-quality audits and further assurance from external auditors when the firm is more complex and riskier. In addition, the results suggest that within-country, institutional factors play significant role in shaping the governance role of gender-diverse audit committee.
Practical implications
The study contributes to the agency theory by providing evidence that the interaction between agency theory and corporate governance “board composition” generates an effective monitoring mechanism and contributing to the institutional theory by finding that role of female directors on audit committee varies from context to another. In addition, this study contributes to literature review of gender diversity in the boardroom by finding the economic benefit of having female directors on audit committee. Finally, this study has implications for policy-makers in promoting regulations to legalize women presence on the board, to external auditors in assessing control risk during planning the audit, to those who responsible for appointing audit committee members.
Originality/value
The authors extend earlier studies by providing novel evidence on the relationship between gender-diverse audit committees and audit fees in terms of both the supply- and demand-side perspectives; that female directors moderate the relationship between firm inherent situational factors (e.g. audit complexity and firm risk) and audit fees; and that the effect of audit committees’ gender diversity on audit fees varies with sub-national institutional contingencies.
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M.M. Fonseka, Gao-liang Tian and Liu-chuang Li
The purpose of this paper is to investigate the impact of different sources of external financing and internal financial capabilities on competitiveness and sustainability. This…
Abstract
Purpose
The purpose of this paper is to investigate the impact of different sources of external financing and internal financial capabilities on competitiveness and sustainability. This paper also studies the nature of their relationships related to regulations on external financing in Chinese capital market.
Design/methodology/approach
Resource- and industry-based views provide a theoretical background. Based on balanced panel of 4,530 firm-year observations, hierarchical regressions were used to examine the research model.
Findings
Results support the idea that the strict Chinese regulatory regime allows some firms to access capital and debt markets for financing more than others. It was found that firms’ internal financing abilities do not offer a significant advantage compared to external financing abilities; firms’ abilities to raise capital from existing shareholders, the public and easy access to bank financing are related positively for an advantage on firm’s competitiveness within a industry. Firms with the ability to offer shares to existing shareholders, issue non-convertible and convertible bonds and access to bank financing are sustainable in long-run.
Research limitations/implications
This study focuses on sources of financial capability of Chinese listed firm impact on competitiveness and sustainability. It is context specific to a regulated market. Hence, it is necessary to replicate this study in other contexts.
Practical implications
Implications include the need to mobilize external financial resources for small and privately-owned firms and to further reform security regulations to ensure fair competition and sustainability.
Originality/value
The authors originally investigate the effect of sources of financial capability impact on firms’ competitiveness and sustainability in a regulated market. The paper explains the relationships, and enhances the understanding of regulated capital market and existing literature.