Administrative monopoly regulation and corporate tax avoidance - evidence from China

Abstract

This study examines the impact of administrative monopoly regulation on corporate tax avoidance. Using the difference-in-difference (DID) methodology and data from A-share listed companies for the period 2012–2020, we find that China's Fair Competition Review System (FCRS) significantly reduces tax avoidance by administrative monopolies. Possible channels include increasing analyst attention, improving quality of corporate disclosure, and increasing management ownership. The enhanced external monitoring and increased internal incentives resulting from the implementation of the FCRS reduce the tax avoidance impulse of administrative monopolies. Heterogeneity analysis shows that the dampening effect of the FCRS on tax avoidance is more pronounced among firms with strong short-term solvency, weak financing constraints, and defect-free internal controls.