Abstract
AbstractThis study examines whether business group affiliation weakens the sensitivity of income tax expense to pretax income, while external monitoring mechanisms mitigate the effect of group affiliation. We find that this sensitivity is weaker for Chinese listed firms affiliated with a top 500 business group than for unaffiliated firms. Economically, our coefficient estimate implies that group affiliation weakens tax sensitivity to income by 5.2% in relative terms. However, we find that tax sensitivity improved in the post‐2008 period and with the presence of strong monitoring mechanisms by means of tax enforcement, analyst scrutiny, and long‐term institutional shareholding. To the extent that unexplained variation in current tax expense at a given income level is indicative of aggressive tax behavior, our results suggest that effective external monitoring can mitigate this behavior in group‐affiliated firms.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Journal of International Financial Management & Accounting
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
