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Journal of Business Ethics
Published in: Journal of Business Ethics 3/2020

02-01-2019 | Original Paper

Political Status and Tax Haven Investment of Emerging Market Firms: Evidence from China

Authors: Ziliang Deng, Jiayan Yan, Pei Sun

Published in: Journal of Business Ethics | Issue 3/2020

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Abstract

Tax haven investment has become an increasingly important topic in business ethics. Given the considerable tax haven investments from emerging market firms, understanding how home-country institutions shape their investments in tax havens is theoretically intriguing and practically crucial. By integrating resource dependence and institutional theories, we hypothesize the existence of a negative relationship between firms’ home-country political status and tax haven investment. State-owned enterprises (SOEs) controlled by the central government dominate the political hierarchy. Compared with other types of enterprises, central SOEs receive the strongest institutional support and are the most prone to institutional oversight, thereby exhibiting the weakest tendency to invest in tax havens. This top group is followed by SOEs controlled by local governments, politically connected private firms, and private firms without political connections. These groups exhibit an increasing tendency to invest in overseas tax havens. The empirical analysis of Chinese listed firms during 2003–2013 supports our hypotheses. This research contributes to the business ethics literature by identifying institutional drivers of overseas tax haven investment by emerging market firms, thereby adding to the ethical debate on international tax avoidance.
previous article Different Drivers: Exploring Employee Involvement in Corporate Philanthropy
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Appendix
Available only for authorised users
Footnotes
1
The annual consequent corporate income tax loss is estimated to be roughly USD100–240 billion, which is equivalent to 4–10% of the global corporate income taxes (OECD 2017). In June 2018, 115 countries have joined the OECD/G20 multilateral coordination framework, representing 95% of global GDP (OECD 2018).
 
2
They include Bahamas, British Virgin Islands, Isle of Man, Guernsey, Jersey, Bermuda, Argentina, Cayman Islands, San Marino, and Liechtenstein.
 
3
All historical Chinese OFDI in tax havens accounted for nearly 78% of the value of all Chinese OFDI during 1980–2016. Hong Kong (57.5%), the Cayman Islands (7.7%), the British Virgin Islands (6.5%), and Singapore (2.5%) were the top four destinations (Ministry of Commerce of China 2017).
 
4
Some auxiliary empirical results not reported for brevity, but they are available upon request.
 
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Metadata
Title
Political Status and Tax Haven Investment of Emerging Market Firms: Evidence from China
Authors
Ziliang Deng
Jiayan Yan
Pei Sun
Publication date
02-01-2019
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 3/2020
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-018-4090-0

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