An Empirical Analysis On The Correlations Among Tax Avoidance,internal Control And Stock Price Crash Risk

As China's tax environment is more and more mature after several domestic tax reforms in recent years,our taxpayers' awareness and attention to tax avoidance are constantly improving because of the tough tax collection and enforcement environment.The desires for companies to maximize their value through tax avoidance are becoming more and more intense.However,due to the existence of the Principal-Agent problem,it is difficult to distinguish the implicit interests under the radical tax avoidance activities.For example,there exists that some listed companies' managers choose to plan radical tax avoidance structures so as to occupy public resources,or even transfer these resources,which not only lead to huge fines the companies have to pay,but also threaten companies' reputations,thus increasing stock price crash risks.As an important risk management tool,internal control of a company is able to control and supervise accounting activities and management activities of the company from the source,and increase the transparency of the company's information disclosure,thus effectively solving the problem of asymmetric information between the company and investors,and effectively stabilizing the company's stock price as well.Firstly,this paper reviews and summarizes the existing research results from three dimensions of tax avoidance,internal control and stock price crash risk,and analyzes the correlations among them.Then,we explore the mechanism of the impact of tax avoidance on stock price crash risk and the mechanism of internal control to adjust the impact between tax avoidance and stock price crash risk,and put forward following hypotheses,namely,hypothesis 1 as "Tax avoidance is positively associated with future stock price crash risk.The higher the degree of tax avoidance,the greater the risk of a stock crash.",and hypothesis 2 as "Internal control can effectively inhibit the positive impact of tax avoidance on stock price crash risk.The higher the quality of internal control,the weaker the positive impact of tax avoidance on stock price crash risk." Next,we select domestic A-Share Listed Companies from 2008 to 2016 as our empirical samples,and verifies hypothesis 1 and hypothesis 2 respectively from descriptive statistics,Pearson correlation test and mean difference test.On the basis of previous analyses,we perform a more rigorous multiple linear regression analysis,which further confirms hypothesis 1 and hypothesis 2.In order to improve the robustness of the empirical results,we conduct stability tests like endogenous test and it shows that the empirical research model used in this paper is reasonable,and the empirical results are accurate.Our results show that the tax avoidance of domestic A-Share Listed Companies is positively correlated with stock price crash risk,that is,the more aggressive tax avoidance is,the greater the stock price crash risk.However,the implementation of internal control can effectively weaken the positive effect between tax avoidance and stock price crash risk.Because the transparency of information disclosure of listed companies is higher after the companies implement internal control,which effectively reduces the degree of information asymmetry between investors and companies,and is conducive to the effective supervision of managers' management opportunistic behavior.In addition,we also found that the higher quality the internal control is,the less negative impact the tax avoidance plays on stock price crash risk.These conclusions give us a clear understanding of the relationship among tax avoidance,internal control and stock price crash risk,and the importance of internal control in the inhibition of corporate management opportunism as well.Therefore,we put forward some countermeasures and suggestions on how to improve the quality of internal control and how to prevent the management opportunism behavior at the end of this article.