Corporate Tax Avoidance and Firm Diversification: Evidence from Chinese Listed Firms

This study investigates the relationship between the diversified operation strategy of Chinese listed firms and corporate tax avoidance. In contrast to the traditional viewpoint that diversified firms are more prone to tax avoidance, the present study concludes that the tax avoidance level of diversified firms is lower than that of specialized operation firms. Further research also shows that the nature of the property rights and supervision faced by firms can affect the conclusion drawn from the baseline analysis. Our findings reflect that diversified state-owned enterprises have lower tax avoidance levels than diversified non-state-owned enterprises, and the impacts of internal and external supervision on tax avoidance are different. A possible explanation for the reduced tax avoidance with diversification is that diversification weakens internal control and reduces a firm's ownership concentration.