Chief Financial Officers’ Power, Institutional Environment, and Corporate Effective Tax Rate: Evidence from China

Abstract

In this study, we investigate how chief financial officers’ (CFOs’) power and institutional environment influence corporate effective tax rates (ETRs). Using a sample of Chinese listed firms from 2004 to 2010, we find that firms with expert power or political power CFOs enjoy a low effective tax rate. Furthermore, CFOs’ expert power plays a more important function in reducing ETR in regions with a better institutional environment compared to those with less-developed institutions. CFOs’ political power is the most important factor in reducing ETR in regions with a less developed institutional environment than in those regions with a better institutional environment.