Regulatory Minority Shareholders And Corporate Tax Avoidance: Evidence From The Exercise Of Rights By Investment Service Centers

"Small and medium-sized investors are the main participants in China’s capital market.Due to the wide range of this investor group and the lack of legislation and law enforcement for investor protection,these investors often face infringement such as insider trading,financial fraud,and market manipulation.With the proposal to further strengthen the protection of the legitimate rights and interests of small and mediumsized investors at the 18 th National Congress of the Communist Party of China,the China Securities Investor Services Center was established.As an important institutional innovation in exploring the protection of small and medium-sized investors in China,the establishment of the Investor Services Center has increased the participation of small and medium-sized investors in corporate governance and their initiative to exercise their supervision rights as minority shareholders.This article explores whether the exercise of rights by the Investor Services Center can curb tax avoidance by companies,using data from listed companies in China from 2016 to 2019 as a sample.To comprehensively evaluate the impact of the Investor Services Center on tax avoidance by companies,this article analyzes the impact mechanism of the exercise of rights by the Investor Services Center on tax avoidance by companies from three theoretical perspectives: media attention,regulatory agency attention,and small and medium-sized investor attention.In addition,this article analyzes the impact of the exercise of rights by the Investor Services Center on tax avoidance by companies from three heterogeneous perspectives: exercise characteristics,company-level factors,and the proportion of institutional investor holdings.Based on empirical testing,this article concludes that:(1)The exercise of rights by the Investor Services Center can indeed curb tax avoidance by companies,and this curbing effect is mainly achieved by improving media attention,regulatory agency attention,and small and medium-sized investor attention.(2)Under certain other conditions,the curbing effect of the exercise of rights by the Investor Services Center on tax avoidance by companies is more significant when conducted online rather than on-site.(3)The exercise of the investment service center has a more significant inhibitory effect on the tax avoidance behavior of enterprises with higher financing constraints.(4)The exercising of rights by the investor service center has a more significant inhibitory effect on tax avoidance behavior of companies with high management compensation(5)The curbing effect of the exercise of rights by the Investor Services Center on tax avoidance by companies is more significant for companies with a lower proportion of institutional investor holdings.Based on these conclusions,this article proposes policy recommendations: First,to leverage external supervision to monitor tax avoidance by companies,especially to enhance the regulatory role of the capital market and media supervision,improve corporate governance,curb tax avoidance,and strengthen the protection of small and medium-sized investors.Second,to strengthen the information disclosure system,on the one hand,to improve the comprehensibility and authenticity of corporate information disclosure,and on the other hand,to improve the whistleblowing system.Third,to create a good financing environment,accelerate the improvement of the financial market,expand corporate financing channels,and create a healthy and fair financing environment."...