The Impact Of Bank-firm Relationship On Corporate Tax Avoidance

Since the reform and opening-up,Chinese economy has experienced 40 years of rapid growth and acquired outstanding achievements in many aspects.However,the capital market in China is still at primary stage.Although formal systems such as laws and regulations and financial system arrangements have improved a lot,they are still defective.Due to the blocked direct financing channels for enterprises,bank credit plays a critical role in China's social credit.Banks' funds are limited,so enterprises generally face financing difficulties.In order to ease the financing constraints,more and more enterprises have established relationships with banks.The existing literatures mainly study the impact of bank-firm relationship on corporate credit availability,financing costs,investment efficiency and corporate governance,and so on.There are no literature has focused on the impact of bank-enterprise relationship on corporate tax avoidance,which provides an opportunity for our study.Taking the A-share listed companies from 2007 to 2016 in Shanghai and Shenzhen Stock exchanges as samples,this paper employs normative research and empirical research to examine the impact of bank-firm relationship on corporate tax avoidance.Empirical results show that bank-firm relationship is positively associated with corporate tax avoidance.It is found this phenomenon only exist in non-state-owned firms.Institutional ownership boosts the positive relationship between bank-firm relationship and corporate tax avoidance.As an effective external governance mechanism,tax enforcement can significantly impede the positive relationship between bank-firm relationship and corporate tax avoidance.The effect that bank-firm relationship increase corporate tax avoidance only exists in firms which are faced with low financial development.Corporate tax avoidance induced by increasing bank-firm relationship will decrease firm value.This paper provides empirical evidence for further understanding of the economic consequences of bank-firm relationship and the factors that affect tax avoidance,which enriches the researches on not only bank-firm relationship but also corporate tax avoidance.Finally,this paper puts forward some policy recommendations on how to reduce the degree of corporate tax avoidance and enhance the corporate value for enterprises and government branches.