IPO Listing Review and Corporate Tax Avoidance: Evidence from the Sci-Tech Innovation Board in China

Abstract

IPO listing review via comment letters is an important mechanism to improve the quality of listed firms, while its impact on corporate post-listing behaviors is not clear. Using China’s Sci-Tech Innovation Board (STAR market) listed firms, this paper examines the impact of IPO listing review on corporate post-listing tax avoidance behavior. The empirical tests show that the increase of listing review intensity is significantly associated with lower corporate tax avoidance activities of firms after listing. Using textual analysis methods and mediating analysis, this study finds that the decrease effect of listing review on corporate tax avoidance activities is mainly associated with comment letter questions that monitor the characteristics of R&D activities and compliance with operations and information disclosure. The empirical findings support the “Bonding Hypothesis” about the IPO listing review. Further research shows that for non-state-owned firms, firms with low institutional investors shareholding, and firms listed through profitability-related listing criteria, their post-listing tax avoidance activities are more affected by the listing review intensity. Overall, the empirical findings of this study empirically support to the claim that the interactions between stock exchange and equity issuing firms via comment letters during the IPO process play a significant role in monitoring corporate posting-listing behavior. This study helps to reveal the actual effect and strong transmission between the exchange-led IPO listing review and corporate post-listing behaviors, and expands research findings on tax avoidance as well as the effectiveness of IPO comment letters.