Do Relationship-Based Transactions Matter for Corporate Tax Avoidance? Evidence from China

Abstract

The existing literatures showing that relationship-based transactions would affect company tax avoidance, but with few empirical evidences. This paper makes an empirical study on the topic of relationship-based transations and corporate tax avoidence, by using the data of manufacturing companies from 2008 to 2016, in Chinese A-share listed market, the empirical study shows that the more relationship-based transactions with suppliers (clients), the more aggressive company tax avoidance, which indicates that the bahavior of company tax avoidance is influenced by business strategies. The study also shows that company’s financial decisions may contain selfish motives of powerful executives. Further, the study indicates that relationship-based transactions can boost company’s propensity for aggressive tax avoidance during fierce market competition. Yet, there are varying degrees of diversification in the moderating effects and weakening control rights by senior managers.