Showing papers by "Oliver Zhen Li published in 2017"
TL;DR: The authors found that state-owned firms in government supported industries enjoy faster growth in initial public offerings and higher offer prices, while non-state-owned enterprises are crowded out by preferential access to capital.
Abstract: An important factor influencing corporate finance and economic growth in China lies in its government sponsored industrial policies. Examining China’s five-year plans during 1991–2010, we find that state-owned firms in government supported industries enjoy faster growth in initial public offerings and higher offer prices. Further, they enjoy faster growth in loans granted by major national banks. However, this preferential access to capital by state-owned firms appears to be achieved at the expense of non-state-owned firms which are crowded out. Government support induces more investment but also brings more overinvestment, which mainly comes from the non-state sector. Finally, supported industries have higher stock market returns and cash flow growth that dampen when state ownership increases.
49 citations
TL;DR: Li et al. as mentioned in this paper found that firms facing a reduction (increase) in their individual investors' dividend tax rates are more likely to increase their dividend payout and that such an effect is concentrated in firms where incentives of controlling shareholders and minority shareholders are aligned.
Abstract: The 2012 Dividend Tax Reform in China ties individual investors’ dividend tax rates to the length of their shareholding period. We find that firms facing a reduction (increase) in their individual investors’ dividend tax rates are more (less) likely to increase dividend payout. Such an effect is concentrated in firms where incentives of controlling shareholders and minority shareholders are aligned. Furthermore, investors respond to this tax law change by reducing trading activities before the cum-dividend day and successfully lower their dividend tax penalty. Overall, our evidence enhances the notion that individual investors’ tax profiles shape firms’ payout policies.
36 citations
TL;DR: This article found that the split share structure reform in China aligned the incentive of controlling shareholders with that of minority shareholders by granting trading rights to previously non-tradable shares, which increased firms' tax avoidance activities that are value-enhancing.
Abstract: The split share structure reform in China aligned the incentive of controlling shareholders with that of minority shareholders by granting trading rights to previously non-tradable shares. We find that the reform increases firms’ tax avoidance activities that are value-enhancing. However, the change in tax avoidance is only observed in state-owned firms where, compared to non-state-owned firms, the agency conflict between the controlling shareholder (the government) and minority shareholders is aggravated due to the fact that the former also serves as the tax claimant. Further, this effect is more pronounced in state-owned firms that are more likely to be influenced by the government prior to the reform. Finally, the reform reinforces a positive association between tax avoidance and firm value through an improvement in governance.
29 citations
TL;DR: Li et al. as mentioned in this paper found that when controlling shareholders are more concerned about stock prices, state-owned firms engage more in tax avoidance activities to enhance firm value, and this effect is more pronounced for state owned firms that were more likely to be influenced by the government prior to the split share structure reform.
Abstract: The split share structure reform removes a significant market friction in China's capital market by allowing previously non-tradable shares to be freely tradable at market prices. Such a reform reduces the agency conflict between controlling shareholders and minority shareholders as the former now care more about stock prices. We find that state-owned firms, but not non-state-owned firms, significantly increased their tax avoidance activities after the reform. We attribute this differential effect to the dual role of the government as state-owned firms’ controlling shareholder as well as the tax claimant. Further, this effect is more pronounced for state-owned firms that are more likely to be influenced by the government prior to the reform. Finally, the reform reinforces a positive association between tax avoidance and firm value. Overall, our study suggests that when controlling shareholders are more concerned about stock prices, state-owned firms engage more in tax avoidance activities to enhance firm value.
27 citations
TL;DR: In this paper, the authors examine the association between CEO severance pay and corporate tax avoidance and find that corporate tax-avoidance is increasing in the amount of CEO Severance pay.
Abstract: We examine the association between CEO severance pay (i.e., payment the CEO would receive if s/he is involuntarily terminated) and corporate tax avoidance. We find that corporate tax avoidance is increasing in the amount of CEO severance pay. This finding is consistent with the notion that CEO severance pay encourages otherwise risk averse managers to take reasonable amounts of risk and, thus, fits into the optimal executive incentive scheme as a form of efficient contracting. Further analysis reveals that the association between CEO severance pay and corporate tax avoidance is stronger in situations where we expect the risk-taking incentives provided by severance pay to matter more – when the CEO is otherwise more risk averse and when firms exhibit a higher business risk. Overall, our findings suggest that firms can contract with their managers using CEO severance pay to provide incentives for them to engage in tax avoidance activities.
15 citations