Why Do Publicly Listed Firms Evade Taxes? Evidence from China

Taking advantage of the mandatory disclosure of detected corporate tax evasions in China, we examine why publicly listed firms evade taxes. Different from most prior studies that focus on corporate income tax avoidance, we consider tax evasions related to both income taxes and non-income taxes. We also use a bivariate probit model to account for the partial observability of corporate tax evasion. Many of our regression results using the bivariate probit model are different from the results using the reduced form probit model that ignores the partial observability of tax evasion. Many of our results are also different from those of prior research on the determinants of corporate tax avoidance using the traditional effective tax rate as a proxy for tax avoidance.