Institutional environment, inside ownership and effective tax rate

Abstract

PurposeThe purpose of this paper is to examine the effect of institutional environment and inside ownership on the tax reporting practices of Chinese listed firms.Design/methodology/approachIt is an empirical study using a sample of Chinese listed firms for eight years of time periods between 1998 and 2005.FindingsThis study finds that in Chinese provinces with more developed institutions, firms have higher effective tax rates; however, firms with inside ownership in these regions have lower effective tax rates. Further analysis shows that the above results hold only for non‐state‐owned firms.Originality/valueThe paper presents the first study of the impact of inside ownership and institutional environment on corporate effective tax rate in China.