Ownership structure and corporate tax avoidance: Evidence from publicly listed private firms in China

This study examines the association between ownership structure and corporate tax avoidance in publicly-listed private firms in China. We find a significant non-linear association between ownership concentration and tax avoidance that exhibits an inverted U-shaped pattern. At a lower level, increased ownership concentration is positively associated with tax avoidance due to the entrenchment effect. However, beyond the minimum level necessary for effective control, concentrated ownership through voting rights is negatively associated with tax avoidance because of the alignment effect. We also find a significantly positive association between pyramidal ownership structure and tax avoidance due to the entrenchment effect. When voting rights and cash-flow rights diverge, a lower level of cash-flow rights fails to offer the controlling owner incentive alignment sufficient to reduce the entrenchment effect and tax avoidance.