The Inverted U-shaped Effect Of Strategic Deviation On Tax Avoidance

Enterprise income tax is a significant source of national financial revenue,but the taxes directly reduce the net profit and cash flow of enterprises,so enterprises will try to avoid tax.Meanwhile,under competition within industry,company tends to adopt strategy that deviate from the conventions of the industry in order to obtain competitive advantage.Company strategic deviation often indicates the enterprise’s risk preference and risk tolerance,and tax avoidance is a high-risk and high-yield behavior.So the two have a close connection,and it is so meaningful to explore the interaction mechanism between them.At present,the research on strategic deviation and tax avoidance focuses on the linear relationship between them.Combined with the governance role and profit seeking of institutional investors,this paper will focus on the inverted U-shaped relationship between strategic deviation and tax avoidance.Taking the data of A-share listed enterprises from 2014 to 2020 as a sample,this paper explores the relationship between strategic deviation and enterprise tax avoidance.Firstly,based on the strategic resource-based theory,information asymmetry theory,principal-agent theory and prospect theory,combined with the combing and induction of the literature in the two fields of strategic deviation and enterprise tax avoidance,this paper builds a framework and puts forward the hypothesis through logical deduction and theoretical derivation.Secondly,by constructing key variables and regression model,this paper uses Stata15.0 to verify the inverted U-shaped relationship between strategic deviation and tax avoidance,and further test the regulatory role of institutional investors;Finally,the heterogeneity test is carried out based on the industry competition and the separation of shareholders and management,and the robustness of the conclusion is verified by the substitution variable method.The results:(1)the impact of strategic deviation on the degree of tax avoidance of enterprises presents an inverted U-shape,that is,the degree of tax avoidance will increase and then decrease with the raise of strategic deviation;(2)The combination of institutional investors’ governance function and profit seeking will weaken the inverted U-shaped relationship between strategic deviation and tax avoidance;(3)In the case of fierce industry competition or separation of two jobs,there is a significant correlation between the degree of strategic deviation and the degree of tax avoidance.To sum up,there are suggestions:(1)Enterprises should carefully consider the improvement of strategic deviation,formulate complete plans to resist potential risks and promote the implementation of strategies.Continuously optimize the ownership structure and promote institutional investors to actively participate in corporate governance.Formulate a reasonable incentive plan for senior executives to reduce the opportunistic motivation of management.(2)Regulators can supervise enterprises differently through strategic deviation and put forward different tax reduction countermeasures for various industries and further promote the implementation.While encouraging the development of institutional investors,regulators also need to standardize their operation and guide them to establish the concept of long-term investment and value investment.The contributions of this paper are as follows.Firstly,it enriches the relevant research on the mechanism between strategic deviation and tax avoidance.For the connection of them,scholars focus on the linear relationship,and the conclusions are unified.This paper verifies the inverted U-shaped relationship between them,explains the more complex impact of strategy on enterprise tax avoidance,and enriches the research in this field.Secondly,it verifies that institutional investors play a regulatory role in the inverted U-shaped impact of strategic deviation on enterprise tax avoidance,showing the two sides of institutional investors,which enriches the market’s understanding of institutional investors.