Can analyst coverage reduce corporate tax avoidance? Evidence from China

Area of Science:

• Corporate Finance
• Accounting Research
• Information Economics

Background:

• Tax avoidance is a significant issue in corporate finance.
• Analyst coverage is a key factor influencing corporate behavior.
• The interplay between analyst coverage and tax avoidance requires further investigation.

Purpose of the Study:

• To examine the impact of analyst coverage on corporate tax avoidance.
• To explore the mechanisms through which analyst coverage affects tax avoidance.
• To identify firm-specific characteristics that moderate this relationship.

Main Methods:

• Utilizing a sample of A-share listed companies in China (2009-2021).
• Employing quantitative analysis to assess the relationship between analyst coverage and tax avoidance.
• Conducting further analysis on moderating factors like innovation investment, state ownership, and management shareholding.

Main Results:

• Analyst coverage significantly inhibits corporate tax avoidance.
• Improved information environment and alleviated agency problems are key transmission channels.
• The inhibitory effect is more pronounced in firms with limited innovation investment, state-owned enterprises, and low management shareholding.

Conclusions:

• Analyst coverage serves as a crucial deterrent to corporate tax avoidance.
• Enhancing the information environment and mitigating agency costs are vital strategies.
• Tailored regulatory and corporate governance approaches are suggested for specific firm types.