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Published in: Journal of Business Ethics 2/2022

02-01-2021 | Original Paper

Cultural Diversity and Corporate Tax Avoidance: Evidence from Chinese Private Enterprises

Authors: Guangyong Lei, Wanwan Wang, Junli Yu, Kam C. Chan

Published in: Journal of Business Ethics | Issue 2/2022

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Abstract

We examine the impact of a city’s cultural diversity on a firm’s tax avoidance (TA). Our findings suggest that when a firm is located in a culturally diverse city, it exhibits less TA than a firm located in a less culturally diverse city. The findings are robust to alternative metrics of cultural diversity and TA and after accounting for omitted sample bias and endogeneity. Additional analysis suggests that the negative impact of cultural diversity on a firm’s TA is more salient in a firm with strong managerial incentives or in a city that is characterized by more migration. Furthermore, we document that the negative impact of cultural diversity on TA is more pronounced when firms face strong financial constraints or effective internal and external monitoring.
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Footnotes
1
The mean and median of BTD are different from those in Xia et al. (2017). We attribute the difference due to four reasons: (1) our sample is from 2007–2017 while theirs is from 2000–2014, (2) we use only non-SOEs and they include all firms, and (3) Xia et al. (2017) follow Kim et al. (2011) method while we use Manzo and Plesko (2002) method to calculate BTD.
 
2
We compare the means and medians of the full sample and the reduced sample. The dependent variable (BTD) and explanatory variables (DIVERSITY1 and DIVERSITY2) do not exhibit significant differences between the full and reduced samples.
 
3
The data for the mountainous terrain in and around a city (QFDU) are from Feng et al. (2007). In Feng et al., they use the geographical information system method to examine a 1 to 1 million mountainous terrain model. Based on a 10 km by 10 km window (a piece of land) and using 500 m as the standard height, they assign a value of n to the piece of land if a window has n times of 500 m.
 
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Metadata
Title
Cultural Diversity and Corporate Tax Avoidance: Evidence from Chinese Private Enterprises
Authors
Guangyong Lei
Wanwan Wang
Junli Yu
Kam C. Chan
Publication date
02-01-2021
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 2/2022
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-020-04683-2

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