Pyramidal Ownership, Tax Planning And Firm Value

With the advance of reform process of China’s state-owned enterprises and the strengthening awareness of the protection of investors in capital markets, the negative impact on state-owned listed companies’ firm value brought by government’s intervention and agency problem has aroused general concern by regulators. How to solve the two types of problems faced by state-owned listed companies has become the focus in academia and the pyramid structure is one of the controversial topics of discussion. Should state-owned enterprises simplify the existing pyramid structure through whole listing? Or make the existing pyramid structure more complex through spin-off listing? In recent years, many researches have studied the relationship between pyramid structure and the firm value of state-owned listed companies, but the conclusions are not consistent from the existing literature. So it is necessary to combine specific background and make further studies on the pyramid structure of China’s state-owned listed companies, which has important theoretical and practical significance for academic research, regulators and the state-owned listed companies.Tax planning is closely related to the corporate cash flow, and is an important factor affecting the firm value. However, the information asymmetry in the tax planning will lead to the emergence of agency problems; at the same time, tax planning will largely affect the government’s fiscal tax revenue, so it is also an important aspect in which state-owned listed companies affected by government intervention. Studying pyramid structure from a tax planning angles can integrate the background of government intervention and agency problem, and bring a more comprehensive understanding about the mechanism between pyramid structure and firm value of state-owned enterprises.This paper analyzes the effect of pyramidal ownership on the firm, value of state-owned listed companies from a tax planning perspective by using the data of Chinese state-owned listed companies from2008to2011. The result shows that the state-owned listed companies, which have higher ETR than other listed com.panies,bear more tax costs because of government’s intervention and political cost. The ETR of state-owned listed companies is negatively related to the pyramidal layers, which indicates higher pyramidal layers could ease government’s intervention, reduce political cost and lead more aggressive tax planning of state-owned listed companies, but the protective effects of pyramidal ownership only exists in the regions which face more intervention from government.Additionally, the tax aggressive of companies is significantly negatively related to the Tobin’s Q for the state-owned listed companies which ultimate controlling shareholder’s ownership is separated from the control right, and the relationship is not significant for the state-owned listed companies which ultimate controlling shareholder’s ownership is equal to the control right. These results illustrate the speration of ultimate controlling shareholder’s ownership and control right enhance the tunneling motive of major shareholders,which make the tax planning involved into a measure for expropriation and increase the agency cost of state-owned listed companies in tax planning.This paper proposes both the protective effects and the expropriation effects of pyramidal ownership should be considered in the process of state-owned enterprise reform and it is critical to weigh the tax cost reduced by pyramidal layers and the agency cost increased by the speration of ultimate controlling shareholder’s ownership and control right. Appropriate ownership should be adopted to reduce the negative impact of government’s intervention and agency problem on state-owned listed companies’tax planning and firm value.In addition, the tax authorities should fully consider the impact of the pyramid structure factors in the tax audit of listed state-owned companies, strengthen the external constraints on the self-interested behavior of managers in the tax supervision, and guide the state-owned enterprises improve the firm value through reasonable tax planning,the results of this study enriches the studies on non-tax costs in the theory of effective tax planning, verifies the external government intervention factor may affect tax planning of state-owned listed companies; On the other hand, the study also expands the existing research perspective for the studies on the analysis of pyramid structure and firm value, specifies the mechanism of how the pyramid structure affect the firm value of state-owned listed companies from a tax perspective, provides important basis for the reform and improvement of corporate governance of state-owned enterprises.