Power, profits, and taxes: Unraveling the impact of CEO ownership on aggressive tax planning in China

Abstract

This study empirically examines the relationship between CEO ownership and aggressive tax planning (ATP) in Chinese listed companies, with internal control as a moderating variable among 8,220 firms between 2017 and 2022. The findings reveal that CEOs with higher ownership are more inclined to engage in ATP to maximize firm value and personal wealth. Consistent with agency theory, this study suggests that ownership-based incentives mitigate agency costs and issues. Furthermore, the study revealed that internal control plays a significant moderating role, effectively mitigating the positive association between CEO ownership and ATP. Additionally, firm size and state ownership (SOE) positively correlate with ATP. In contrast, leverage, independent director proportion, and CEO duality negatively correlate with ATP, highlighting the nuanced impact of governance structures. The findings offer significant implications for tax authorities and corporate policymakers. Strengthening tax compliance regulations and enhancing internal control systems could improve tax transparency and curb aggressive tax behavior. Firms should refine governance structures, particularly CEO ownership incentives, to balance managerial discretion with regulatory compliance. While data limitations and the absence of broader executive characteristics pose constraints, future research could expand on ownership structures, legal frameworks, and industry-specific factors to deepen the understanding of tax planning behaviors.