Financing Constraints,Institutional Investors And Corporate Tax Avoidance

Financing is a vital "bottleneck" which influencing enterprise’s development,and the production and operation of enterprises are strongly associated with the financing activity.Information asymmetry and principal-agent problems make it hard for companies to gain financing successfully,making it difficult and expensive for companies to raise capital.When companies are unable to raise the necessary funds through external financing,they will usually choose to turn to internal financing method to relieve their capital pressure.Corporate tax avoidance reduces the outflow of funds from companies while lowering their tax obligations,allowing more cash to be retained within the company,which can undoubtedly effectively alleviate the financial constraints of the company and ensure that the normal operation and development of the company is not hindered.Therefore,when a company faces financing constraints,there is an intensive motivation for them to implement tax avoidance in order to improve its financial position.However,tax avoidance is not only beneficial for companies,but also has many disadvantages.According to the tax avoidance agency view of the principal-agent framework,enterprises usually have to use some complex transactions to implement tax avoidance activities,which will greatly increases the concealment and complexity of tax avoidance activities and leads a higher degree of interior and exterior information opacity of enterprises,causing agency conflicts,thus generating a series of risks such as information risk,agency risk and regulatory risk,which in turn increases the risk rating of enterprises made by external fund providers,resulting in a deterioration of the external financing environment for enterprises.This shows that tax avoidance is a double-edged sword to alleviate financing constraints,and aggressive tax avoidance is not the best way to alleviate corporate financing difficulties too.Along with the on-going growth of market,the model of institutional investors has become increasingly mature.With the rapid development of various types of institutional investors and the gradual increase in the proportion of shares they hold in listed companies,it can be said that institutional investors today are one of the momentous players in the capital market.Institutional investors have capital and profess ional advantages,and their information mining and interpretation capabilities are far better than those of individual investors.In addition,their motivation and ability to participate in corporate governance are more adequate,so their participation can play a positive role in improving information asymmetry problems and agency problems,thus reducing the company’s external financing costs.In the theory of effective tax planning,the choice of tax avoidance is guided by the maximization of after-tax returns.Therefore,when institutional investors’ shareholdings lower the external financing cost,the cash savings from tax avoidance activities may not outweigh the costs of tax avoidance anymore,and companies may not choose to implement tax avoidance activities after weighing the pros and cons.This paper first defines financing constraint,corporate tax avoidance and institutional investors,and summarizes the current research status of financing restrictions,enterprise tax evasion and institutional investors by combing relevant literature detailedly,as well as the remaining areas to be studied.Secondly,elaborates the theory of pecking order financing and the theory of effective tax planning,which lays the theoretical foundation for this paper,and put forward the hypothesis of this paper on this basis.Subsequently,this article carry on a analysis on listed companies from 2011 to 2020,and finally draws the following conclusions:(1)When faced with financing constraints,enterprises will alleviate financing difficulties through implementing tax avoidance activities,that is,financing constraints are positively correlated with corporate tax avoidance behaviors.(2)The correlation between financing constraints and corporate tax avoidance can be suppressed.(3)Those who are stable have inhibitory effect on correlation between financing constraints and corporate tax avoidance.(4)Compared with pressure-susceptive institutional investors,those pressure-rejective have an obvious inhibitory effect on the positive correlation between financing constraints and corporate tax avoidance.Finally,based on the research conclusions of this article,policy advices are raised from the angles of government and corporations.The conclusions of this article have vital practical significance and enlightenment for understanding the mechanism of action among institutional investors’ shareholding,financing constraints and enterprises tax evasion,as well as for countries’ macrocontrol and relevant policy formulation and enterprises’ strengthening of internal govern governance.