Can digital transformation alleviate corporate tax stickiness: The mediation effect of tax avoidance

Abstract

As the salient pain during the economic downturn, tax stickiness has been deeply troubling enterprises. Given the burgeoning academic interest in the role of digital transformation in corporate decision-making, we focus on its implications for tax management decisions. This study aims to test the association between digital transformation and tax stickiness and the mediating effect of tax avoidance. Theoretically, we use an information processing view to incorporate digital transformation into tax research. Empirically, we use the fixed effects model to verify our hypotheses based on the fine-grained panel data of Chinese publicly listed enterprises from 2007 to 2019. Results show that (a) digital transformation significantly reduces tax stickiness, (b) digital transformation alleviates tax stickiness by enhancing tax avoidance, and (c) the alleviating effect of digital transformation on tax stickiness is more prominent in companies with weak internal control and regions with low tax enforcement and high environmental uncertainty. Our findings hold after a range of robustness tests. Our results confirm the importance of digital transformation for tax management and provide new insights for enterprises to reduce tax stickiness through digital transformation. Our study also has important practical implications for business managers and policymakers.