Tax Avoidance, Internal Control And Firm Risk ——Based On Empirical Evidence Of Chinese A-share Listed Companies

Benjamin Franklin once said that nothing in the world is inevitable except death and taxes.This applies not only to individuals,but also to businesses.The income tax expense accounts for the firm profit a significant proportion,simultaneously also is our country government finance revenue one of main sources.For this reason,the research on firm income tax has been a hot topic in both practical and theoretical circles,while the relationship between tax avoidance and firm risk has been the focus of debate.Some scholars believe that there is a positive correlation between tax avoidance and firm risks.But at the same time,some scholars believe that there is a positive correlation between tax avoidance and firm risks.Does tax avoidance behavior of listed companies in China increase firm risk and lack systematic evidence and answers? Internal control as a reasonable management and control of the risk related to shareholder value system tools,the role of internal control in tax avoidance and firm risk has not been studied in the literature.Therefore,based on the unique background of China,this paper tests the relationship between tax avoidance and firm risk,and further discusses how internal control affects the relationship between tax avoidance and firm risk.Based on this,this paper takes Shanghai stock exchange and Shenzhen stock exchange a-share non-financial listed companies as samples,respectively from the manager appropriate risk,the large shareholder tunneling risk,operational risk and accounting fraud risk,four different firm risk as the breakthrough point,inspection tax avoidance behavior of Chinese listed companies and the relevant relationship between firm risk,and to explore the role of internal control.The empirical results show that,first of all,the risk of manager appropriate risk andlarge shareholder tunneling risk caused by firms with aggressive tax avoidance are higher,while high-quality internal control can effectively weaken the correlation between tax avoidance and agency risk.This indicates that tax avoidance will increase two types of agency risks,while high-quality internal control can reduce agency risks by promoting the improvement of information quality and the effective play of governance level.Secondly,there is a positive correlation between the aggressiveness of tax avoidance and the business risk of firms,while high-quality internal control can restrain the business risk caused by tax avoidance.This means that tax avoidance is a trade-off between risks and benefits,and tax avoidance can obtain tax-saving benefits and increase business risks.High-quality internal control can reasonably control and control the relationship between risks and benefits,rather than focusing on either side;At last,there is a negative correlation between the radicalization of tax avoidance and accounting fraud,while internal control can effectively weaken the correlation between tax avoidance and accounting fraud.It is further found that the role of internal control is mainly due to the suppression of firm accounting fraud.This indicates that external shareholders and government regulators will pay attention to the quality of accounting information of companies with high degree of tax avoidance,while rational management and major shareholders will not hide the risk of accounting fraud through aggressive tax avoidance.More often,Listed companies in China avoid external vigilance to accounting fraud by reducing the degree of tax avoidance.In summary,the evidence shows that high-quality internal control can effectively restrain the increase of agency risk and business risk caused by tax avoidance,and reduce the possibility of listed companies covering up their accounting fraud by paying more taxes;However,in either case,high-quality internal control can effectively manage the increased risks of various firms caused by tax avoidance.The contributions and innovations of this paper are as follows: first,it helps to clarify the relationship between tax avoidance and firm risk of Listed companies in China.This paper revolves around two kinds of agent risk in firm risk,operational risk and accounting fraud risk investigation,for Chinese listed companies tax avoidance and the relationship between the firm risk provides a more complete and interpretation of evidence,powerful supplement of the current domestic literature to explore the defects of insufficient.Secondly,based on the nature of the internal control function,shareholder wealth maximization,directly into the internal control for the effect of tax evading the risks of firm,not only enriched the internal control related literature research,also extends the existing literature at home and abroad mostly research the financial reporting and internal control only neglect non-financial reporting internal control can play its role in the risk control.Finally,the study of this paper also has some practical significance.For listed companies,it is not the more tax avoidance the better,but the risk brought by tax avoidance needs to be reasonably controlled,and the relationship between income and risk needs to be properly handled to establish and improve the company's effective internal control system.For tax regulatory authorities,tax avoidance is more likely to cause accounting information risks.Therefore,it is necessary for multiple departments to discuss and cooperate with each other to share information,strengthen external supervision and increase audit resources and audit sampling scope,so as to make firm insiders understand that self-interested behaviors will be more likely to be investigated by external regulatory authorities.For investors,the correct identification of hidden risks behind tax avoidance requires the help of high-quality internal control of listed companies.High-quality internal control often represents the high quality of accounting information and better firm governance effect of firms.In this context,the aggressive tax avoidance of firms is more conducive to the control of risks.On the contrary,the firms with low quality internal control and high degree of tax avoidance may contain significant firm risks,which should be carefully treated by investors.