An Empirical Study on Effective Tax Rate and CEO Promotion: Evidence from Local SOEs in China

Kai Wang,Yun Sun,Haomin Zhang,Jin Jiang,Sang-Bing Tsai,Jiangtao Wang

doi:10.3390/su10062007

Abstract

This paper investigates the influence of effective tax payment on the CEO promotion in local State Owned Enterprise (SOE) in China. Based on the analysis of listed local SOEs in China from 2004 to 2010, this paper tests the relationship between CEO promotion and tax payment. In addition, the moderating effect of pyramid layer is tested. This paper finds that there is a significant positive relationship between Effective Tax Rate (ETR) and CEO promotion, which suggests that CEOs may be aggressive in tax payment to please the local governments, who ultimately own the local SOEs. The current paper also finds that the relationship between ETR and CEO promotion is weakened as pyramid layers increase. Our conclusions enrich the literature on CEO turnover and the role of pyramid structure. The conclusions are also helpful for the SOEs’ reform in China and other developing countries. First, this paper is among the first to investigate the relationship between ETR and CEO turnover. Second, this paper highlights the function of pyramid structure in mitigating government intervention. Third, this paper also adds to the research on effective tax.

Highlights

China has witnessed a massive wave of privatization in the past decades, many firms remain controlled by local governments, especially those that engage in such vital industries as energy, telecommunications, and public utilities
The result suggests that Effective Tax Rate (ETR) and CEO promotion is positively related and the pyramid layer weakens the relationship between CEO promotion and ETR, which supports H2
This paper investigates CEO turnover in local State Owned Enterprise (SOE) in China from a new perspective

Summary

Introduction

China has witnessed a massive wave of privatization in the past decades, many firms remain controlled by local governments, especially those that engage in such vital industries as energy, telecommunications, and public utilities. Those firms have been playing a crucial role in China’s economy (for example, in 2010, local SOEs account for 32% of all the listed firms in China and their market value and tax payment are both much higher than those of non-SOE firms (refer Appendix B for more details)), even if privatization becomes more and more popular in China [1]. This paper posits that, for China’s local SOEs, CEO promotion is positively related to the Effective Tax Rate (ETR)

Objectives

Results

Conclusion