Product Market Power,Tax Avoidance And Stock Price Informativeness

In recent years,corporate tax avoidance phenomenon is more and more common and increasingly serious,therefore many scholars began to study the determinants of corporate tax avoidance.Most of the existing literature have researched from the perspective of corporate characteristics,executive incentive and executive personal characteristics.However,there is little literature to study tax avoidance from the perspective of product market power.Product market power is an important determinant of managerial decision-making.Existing studies establish that a firm’s product market power influences its investments,financing,cash distributions,corporate governance,analysts’ earnings forecasts,and hedging decisions.Then,whether product market power affect the corporate tax avoidance decisions?Whether the relationship between product market power and tax avoidance affect stock price informativeness?This is a really new problem and worthy of further study.Based on existing literature,this paper examines the relationship between product market power and tax avoidance on the sample of A-share non-financial listed companies from 2010 to 2015.Further this paper explores the impact on stock price informativeness.The results show that:firms with stronger product market power have higher degree of tax avoidance;Quantile regression indicates that the increase of product market power have more influence on both low and high levels of tax avoidance,but less influence on middle levels of tax avoidance.Further,whether state-owned firms or non-state-owned firms,firms with stronger product market power have higher degree of tax avoidance,and in state-owned firms,the product market power have greater impact on tax avoidance.Moreover,firms with stronger product market power have more informative stock prices.We further find that the higher tax avoidance of firms with product market power significantly improves the stock price informativeness.As product market power increases,firms with comparatively higher tax avoidance is associated with more informative stock prices;the improvement of firm’s tax avoidance enhances the role of product market power in stock price informativeness;tax avoidance is one of the channels through which product market power increase stock price informativeness.The conclusion of this paper enriches the academic literature on the economic consequences of product market power,the influence factors of tax avoidance and stock price informativeness.Based on these conclusions,this paper argues that the tax authorities should strengthen the supervision of the firms with product market power,product market reform should take into account the capital market development,and the firms with product market power should pay attention to the establishment and improvement of corporate governance mechanism.