How does state ownership affect tax avoidance? Evidence from China

We examine how the state ownership affects firms' tax avoidance. Using a proprietary dataset of actual tax filings of firms in China, we find evidence that state-owned enterprises (SOEs) avoid tax to a less extent than non-SOEs. The negative effect of the state ownership on tax avoidance is stronger among bigger firms and is weaker among firms with concentrated non-state ownership. Overall, our results suggest that the executives at SOEs have incentives to please the government through generous tax payments, and that these incentives are curbed by the monitoring of concentrated non-state ownership.