Monitoring Incentives and Tax Planning – Evidence from State-Owned Enterprises

Abstract

This study provides new evidence on the association of state ownership and tax planning by showing that a state owner’s monitoring incentives affect a firm’s tax planning. Using the setting of a developed market economy, Germany, we distinguish between state owners that directly benefit from state-owned enterprises’ (SOEs’) income tax payments and those that do not. Our results indicate that state ownership is not associated with less tax planning unless the state owner directly benefits from higher tax payments. These results are robust to various specifications and suggest that shareholders’ monitoring incentives are a determinant of a firm’s tax planning activities.

Keywords: tax avoidance, monitoring, ownership Structure, state owned enterprises

JEL Classification: G30, G32, H26, H71