Stock Liquidity And Corporate Tax Avoidance

The market of stock trading is a bridge connecting companies and shareholders.The micro-structure of the stock market can change the shareholders' behaviors to strongly affect the financial decisions of companies.The shareholding “dominance” structure and the absence of owners led to serious insider control issues in China,which promote the controlling shareholders and managements' opportunistic behaviors.Therefore,studying the relationship between stock liquidity and corporate financial decisions should consider the particularity of China's capital market and operating mechanisms.This paper investigated the effect of stock liquidity on corporate tax avoidance using the data of non-financial listed companies in China from 2008 to 2017.Firstly,the paper found that stock liquidity is negatively correlated with tax avoidance based on the mechanisms of shareholder withdrawal threat and the information of stock price.Secondly,it is suggested that stock liquidity has a greater effect on firms with higher tax avoidance.Thirdly,the paper further found that the shareholding ratio of institutional investors,the tunneling of controlling shareholders and the compensation incentives of managements can all enhance the restraining effect of stock liquidity on tax avoidance.On the one hand,it has increased the evidences about the real economy on the micro level.On the other hand,it is significant to improve corporate governance system and promote the capital market development on the macro level.There are some main research contributions of this paper as follows: First,there are few literatures which place stock liquidity and corporate tax avoidance in the same research framework.This article directly examined the impact of capital market on corporate financial behaviors from the perspective of the market micro-structure,enriching the research field of stock liquidity and corporate tax avoidance.Furthermore,the study suggested that there is a difference in the degree of influence between stock liquidity and tax avoidance by using the quantile regression method,and effectively overcame the endogenous problems by using two-stage least squares method.Lastly,the paper creatively incorporated institutional investors,controlling shareholders' tunneling and management compensation incentives into the research framework,which provide relevant evidences about taking institutional investors into account,improving the controlling market and establishing effective compensations.