Tax enforcement and corporate financial irregularities: Evidence from China |
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| Institution: | 1. School of Economics and Finance, Xi''an Jiaotong University, Xi''an, Shaanxi 710061, PR China;2. School of Public Economics and Administration, Shanghai University of Finance and Economics, Shanghai 200433, PR China;3. The Center for Economic Research, Shandong University, Ji''nan, Shandong 250100, PR China;1. School of Economics and Management, University of Chinese Academy of Sciences, Beijing, China;2. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, China;3. Center for Forecasting Science, Chinese Academy of Sciences, Beijing, China;1. University of the Aegean, Department of Business Administration, Greece;2. University of Piraeus, Department of Maritime Studies, 21 Lampraki & Distomou Str., 851833 Piraeus, Greece;1. Center for Quantitative Economics of Jilin University, Changchun 130012, PR China;2. Business and Management School of Jilin University, Changchun 130012, PR China;3. Economics School of Changchun University, Changchun 130021, PR China;1. Department of Digital Economy, Shanghai University of Finance and Economics, No 777 Guoding Road, Shanghai 200433, China;2. School of Information Management & Engineering, Shanghai University of Finance and Economics, No 777 Guoding Road, Shanghai 200433, China;3. Faculty of Business information, Shanghai Business School, No 123 Fengpu Avenue, Shanghai 201400, China |
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| Abstract: | This paper examines whether and how tax enforcement affects corporate financial irregularities in China, utilizing the merger of the State Tax Bureau (STB) and Local Tax Bureaus (LTB) in 2018 as a quasi-natural experiment. Our findings show that stricter tax enforcement significantly reduces corporate financial irregularities, especially for firms with lower tax compliance, poorer internal governance, laxer external supervision, and lower economic status. Furthermore, the mechanism tests demonstrate that stricter tax enforcement forces firms to reduce tax avoidance and tax reporting irregularities. These findings are consistent with the effective supervision channel. Our findings suggest that stricter tax enforcement can improve the quality of corporate information disclosure, and providing useful insights for alleviating information asymmetry and improving information environment in the Chinese capital market. |
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