Internal Control,Background Characteristics Of Chief Executives And Aggressive Tax Avoidance

As the main source of national financial revenue,taxation is an important guarantee for the government to better perform its public service functions and optimize the allocation of social resources.However,through aggressive tax avoidance,enterprises retain more of the wealth that should belong to the state inside the company in order to expand company or seek personal interests.Aggressive tax avoidance relies on the black box operation of various tax-saving and tax-avoidance activities,and effectively reduces tax burden by adopting a large number of tax avoidance means that are in the legal gray zone or illegal,which has become an important form of reducing business costs for enterprises.Increasing aggressive tax avoidance seems to be a realistic choice for companies in various countries,which has become the biggest challenge to the national tax system and ultimately affects social welfare.As the phenomenon of tax avoidance becomes more and more serious,a large number of studies have begun to pay attention to the influencing factors of corporate tax avoidance.As an important internal governance mechanism of enterprises,internal control will inevitably have an impact on aggressive tax avoidance behavior originating from production and operation activities of enterprises.Since the Sarbanes-Oxley Act was promulgated in 2002 in the United States,the importance of internal control in business management activities has become increasingly prominent.Following the internal control guidelines issued by the Shanghai Stock Exchange in 2006 and Shenzhen Stock Exchange in 2007,the Ministry of Finance and other five ministries jointly issued the Basic Standards of Enterprise Internal Control in 2008,and promulgated relevant supporting guidelines in 2010.By 2017,the Ministry of Finance has issued internal control norms for administrative institutions and small sizeenterprises.These normative documents provide a common standard for the construction and evaluation of internal control,which marks the establishment of internal control normative system in China.In November 2018,the Ministry of Finance and other ministries released the internal control analysis report of listed companies in 2017.The report points out that the normative system of enterprise internal control has been effectively operated in listed companies,and internal control has provided a strong guarantee for improving the compliance of listed companies and preventing and resolving major risks.So,how does internal control affect aggressive tax avoidance? What is the mechanism of its action?However,the domestic and foreign scholars' research in this area is lagging behind and insufficient.Few foreign literatures pay attention to the impact of internal control on aggressive tax avoidance.The two existing domestic literatures have not reached a consistent and clear conclusion on how internal control affects corporate tax avoidance,and even the research conclusion is completely opposite.Based on the efficiency goal of internal control,a literature argues that high-quality internal control improves the efficiency of internal tax management,and then promotes the tax avoidance behavior of enterprises.However,another paper argues that the compliance goal of internal control helps to reduce the risk of enterprises violating tax laws and regulations,thus inhibiting aggressive tax avoidance.In addition,the Upper Echelons theory holds that chief executives are at the center of the enterprise,and their cognitive basis and values are influenced by demographic characteristics such as gender,age,tenure,educational background,working experience,which will affect the strategic decision-making and organizational performance of the enterprise.Therefore,internal control is bound to be affected by chief executives who are responsible for construction and maintenance of internal control.It can be inferred that chief executives with different background characteristics will have different degrees of impact on aggressive tax avoidance by influencing internal control.When studying the relationship between internal control and aggressive tax avoidance,if the background characteristics of chief executives are not taken into account,the accuracy of research conclusions may be affected.Based on this,this paper brings the background characteristics of chief executives,internal control and aggressive tax avoidance into a complete research framework.According to the background characteristics of chief executives of listed companies,this paper divides them into homogeneity and heterogeneity,and examines their impact on the relationship between internal control and aggressive tax avoidance from the perspective of homogeneity and heterogeneity,in order to systematically explore the impact of multi-dimensional background characteristics of executives on the relationship between internal control and aggressive tax avoidance and the underlying mechanism.Specifically,first of all,this paper intends to sort out the relevant research results at home and abroad from the aspects of affecting factors and economic consequences of internal control and aggressive tax avoidance,homogeneity and heterogeneity of background characteristics of executives,and the two-way relationship of the above three variables.Secondly,this paper defines the important concepts involved in this study and elaborates the influencing mechanism of the relationship among the three according to relevant theories,and then constructs the theoretical prototype of the relationship among the three.Among them,the goal of internal control and the meaning of aggressive tax avoidance are the key basis for the follow-up theoretical analysis.The influence of homogeneity and heterogeneity of background characteristics of executives on corporate strategic decision-making is the important basis for theoretical analysis.Thirdly,this paper studies the impact of internal control on aggressive tax avoidance,sets up a measurement model,and carries out empirical test by using mathematical statistics.Finally,aiming at the influence of characteristics of chief executives on the relationship between internal control and aggressive tax avoidance,theoretical deduction and empirical test are conducted from the two dimensions of homogeneity and heterogeneity.In the whole empirical research process,this paper chooses Shanghai and Shenzhen A-share listed companies from 2010 to 2015 as the initial research sample,embeds the institutional background of our country for further analysis,and finally forms specific research conclusions.Overall,the theoretical analysis and empirical research conclusions of this paper mainly include seven aspects.Firstly,the relationship between internal control and aggressive tax avoidance.(1)From the perspective of the whole sample,the higher the quality of internal control,the lower the degree of aggressive tax avoidance.High-quality internal control can effectively restrain aggressive tax avoidance of enterprises.(2)After further distinguishing the nature of different property rights,the restraining effect of internal control on aggressive tax avoidance of state-owned enterprises is significantly stronger than that of non-state-owned enterprises.Secondly,the impact of gender of chief executives on the relationship between internal control and aggressive tax avoidance.(1)From the perspective of the whole sample,the gender homogeneity of chief executives(the proportion of women as an alternative variable)weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to the proportion of women,the higher the proportion of women of chief executives,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the gender homogeneity of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in non-state-owned enterprises than in state-owned enterprises.(2)From the perspective of the whole sample,the gender heterogeneity of chief executives weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to the gender heterogeneity,the higher the gender heterogeneity of chief executives,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the gender heterogeneity of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in state-owned enterprises than in non-state-owned enterprises.Thirdly,the impact of age of chief executives on the relationship between internal control and aggressive tax avoidance.(1)From the perspective of the whole sample,the age homogeneity of chief executives(average age as an alternative variable)weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to the age,the older the age of chief executives,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the age homogeneity of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in non-state-owned enterprises than in state-owned enterprises.(2)From the perspective of the whole sample,the age heterogeneity of chief executives weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to the age heterogeneity,the higher the age heterogeneity of chief executives,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the age heterogeneity of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in state-owned enterprises than in non-state-owned enterprises.Fourthly,the impact of degree of chief executives on the relationship between internal control and aggressive tax avoidance.(1)From the perspective of the whole sample,the degree homogeneity of chief executives(average degree as an alternative variable)do not significantly affect the relationship between internal control and aggressive tax avoidance.After grouping according to the degree,there is no significant difference in the impact of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the degree homogeneity of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance only in non-state-owned enterprises,but not in state-owned enterprises.(2)From the perspective of the whole sample,the degree heterogeneity of chief executives weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to the degree heterogeneity,the higher the degree heterogeneity of chief executives,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the degree heterogeneity of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in state-owned enterprises than in non-state-owned enterprises.Fifthly,the impact of tenure of chief executives on the relationship between internal control and aggressive tax avoidance.(1)From the perspective of the whole sample,the tenure homogeneity of chief executives(average tenure as an alternative variable)weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to tenure,the longer the tenure of chief executives,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of property rights,the tenure homogeneity of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in non-state-owned enterprises than in state-owned enterprises.(2)From the perspective of the whole sample,the tenure heterogeneity of chief executives weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to the tenure heterogeneity,the higher the tenure heterogeneity of chief executives,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the tenure heterogeneity of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in state-owned enterprises than in non-state-owned enterprises.Sixthly,the impact of major background of chief executives on the relationship between internal control and aggressive tax avoidance.(1)From the perspective of the whole sample,the homogeneity of major background of chief executives(the proportion of chief executives with major background of accounting,finance or economic management as an alternative variable)does not significantly affect the relationship between internal control and aggressive tax avoidance.After grouping according to the proportion of accounting and other majors,there is no significant difference in the impact of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the homogeneity of major background of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance only in non-state-owned enterprises,but not in state-owned enterprises.(2)From the perspective of the whole sample,the heterogeneity of major background of chief executives does not significantly affect the relationship between internal control and aggressive tax avoidance.After grouping according to the heterogeneity of major background,there is no significant difference in the impact of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the heterogeneity of major background of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance only in non-state-owned enterprises,but not in state-owned enterprises.Seventhly,the impact of professional background of chief executives on the relationship between internal control and aggressive tax avoidance.(1)From the perspective of the whole sample,the homogeneity of professional background of chief executives(the proportion of chief executives with professional background of accounting,finance or economic management as an alternative variable)weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to the proportion of accounting and other professions,the higher the proportion of chief executives with professional background of accounting,finance or economic management,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the homogeneity of professional background of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in non-state-owned enterprises than in state-owned enterprises.(2)From the perspective of the whole sample,the heterogeneity of professional background of chief executives weakens the inhibition of internal control on aggressive tax avoidance.After grouping according to the heterogeneity of professional background,the higher the heterogeneity of professional background of chief executives,the lower the inhibitory effect of internal control on aggressive tax avoidance.After further distinguishing the nature of different property rights,the heterogeneity of professional background of chief executives weakens the inhibitory effect of internal control on aggressive tax avoidance,which is stronger in state-owned enterprises than in non-state-owned enterprises.To sum up,this paper systematically studies the relationship between internal control and aggressive tax avoidance from the perspective of background characteristics of chief executives.Furthermore,the research perspective will be further penetrated into the nature of property rights,in order to reveal the differences of the mechanisms among the above-mentioned three under different property rights.Besides theoretical expansion,it also provides theoretical basis for the policy formulation of tax regulatory authorities and the construction and improvement of relevant systems of listed companies.Specifically,the theoretical and practical significance of this study is reflected in three aspects.Firstly,it helps to deepen the understanding of the impact mechanism of internal control on aggressive tax avoidance.On the basis of empirical verification of the impact of internal control on aggressive tax avoidance,the nature of property rights is further taken into account,and whether there is a significant difference between the quality of internal control and aggressive tax avoidance under different property rights is examined in order to show the effect of internal control on aggressive tax avoidance as a whole and provide decision-making basis for stakeholders.Secondly,it helps to broaden the understanding of the economic consequences of background characteristics of chief executives.Based on the research paradigm of characteristicsbehavior-economic consequences,the characteristics of chief executives(divided into homogeneity and heterogeneity),internal control and aggressive tax avoidance are integrated into a complete research framework,and the mechanism among them is discussed in depth.In the whole research process,this paper divide the sample data according to the current system background of our country,and then analyze whether there is significant difference between the influence of background characteristics of chief executives on the relationship between internal control and aggressive tax avoidance under different nature of property rights.Thirdly,it has important reference value for policy making.First of all,it is helpful for tax authorities to identify more accurately the mechanism of the relationship between internal control and aggressive tax avoidance affected by the background characteristics of chief executives,so as to formulate more targeted regulatory policies to improve the efficiency of tax collection and management.Secondly,it will help listed companies to strengthen the construction of top management team,select and employ chief executives,create a good control environment for the construction and implementation of internal control system of tax compliance,reduce the risk of violation caused by aggressive tax avoidance,and ensure the orderly and compliant operation of enterprises.Finally,this study will be helpful to deepen the reform of property rights system to restrain aggressive tax avoidance.The innovation of this research is mainly embodied in the following three aspects.Firstly,the impact of internal control on aggressive tax avoidance is studied from the perspective of background characteristics of chief executives.By extending the research perspective to the level of chief executives,this paper deeply discusses the influence on the relationship between internal control and aggressive tax avoidance,so as to break black box of the mechanism between internal control and aggressive tax avoidance.By integrating internal control,background characteristics of chief executives and aggressive tax avoidance into an analytical framework,this paper reveals the difference in the degree of aggressive tax avoidance under influence of different background characteristics of executives on internal control,and presents the governance effect of internal control on aggressive tax avoidance as a whole from the micro level.This not only helps to understand the influence mechanism of internal control on aggressive tax avoidance,grasps the relationship between them accurately,and provides empirical evidence from China for the application of Principal-agent theory.This paper also enriches and expands the research on the economic consequences of the background characteristics of chief executives.Secondly,the concept of chief executives is introduced to enhance the effectiveness of research conclusions.This paper closely follows Basic Standards for Internal Control of Enterprises,Accounting Law and Company Law.The concept of chief executives is introduced into the study,and is defined as four categories of personnel,including the Chairman of the Board of Directors,the General Manager,the Chief Financial Officer and the Chairman of the Board of Supervisors,who can exert significant influence on the internal control,financial accounting and tax avoidance of listed companies.While avoiding the arbitrariness of the definition of chief executives,the noise effects of non-chief executives on internal control and aggressive tax avoidance are eliminated,which improves the effectiveness of the research conclusions.Thirdly,this paper covers the dual dimensions of background characteristics of executives and reveals the mechanism of the research objects.Previous literature based on the single perspective of Upper Echelons theory and Social Categorization theory examined the impact of a dimension of background characteristics on strategic decision-making,which might lead to biased conclusions because of the incomplete grasp of the characteristics of chief executives.This paper examines the influence of background characteristics of chief executives on the relationship between internal control and aggressive tax avoidance from the perspectives of homogeneity and heterogeneity,so as to reveal the mechanism of the governance effect of internal control on aggressive tax avoidance from the perspective of background characteristics of chief executives.