148th Seminar

Topic:Parent-Subsidiary Common Managers and Corporate Tax Planning:  Evidence from China


Presenter:Xin Wang  Associate Professor     The University of Hong Kong


Time:January 6, 2017(Friday) 1000 - 11:30


Venue:Room 205, Jiageng Bld 2


Abstract:An interesting, but neglected phenomenon in the corporate governance  practice of company’s subsidiaries is that top managers of the parent company  are often appointed as directors or managers of the subsidiaries. These  parent-subsidiary “common managers” can obtain first-hand internal knowledge  about the firm’s operations and thus are better able to identify tax avoidance  opportunities and to implement tax-reducing strategies. Using a unique  hand-collected data of common managers for Chinese listed firms, we find that  when a firm’s top managers (Chairmen, CEOs, and CFOs) take a position in the  subsidiary, this firm has a lower effective income tax rate than other firms.  The results are stronger for firms with more intangible assets, firms with  related-party transactions in the past year, and firms with more diversified  business segments. Moreover, the tax-reducing effect of common managers is more  pronounced for those common managers who are also the CFOs of the parent  company, for those who are the operating manager of the subsidiary company, and  for those whose related subsidiaries play a more important role in the whole  company’s performance. Our main conclusion holds for the effective tax rate  based on cash-paid taxes, for both subsamples of SOE and non-SOE firms, for both  subsamples of firms with or without multiple nominal tax rates. Furthermore,  such an effect is robust to the change analysis and the 2SLS estimation