Digital Transformation and Corporate Tax Avoidance: Evidence from China
DOI: https://doi.org/10.65967/cpbo.v2i2.57
Digital transformation, Tax Avoidance, Information Asymmetry, Corporate Governance, China
Abstract
During periods of economic uncertainty, firms frequently engage in tax avoidance strategies to reduce financial burdens and enhance profitability. While such practices may provide short-term benefits for individual firms, they can adversely affect government tax revenues and weaken overall economic stability. Against the backdrop of China’s ongoing digital transformation agenda, this study investigates whether corporate digitalization can serve as an effective mechanism for reducing tax avoidance while supporting a more balanced relationship between fiscal sustainability and corporate performance. Using panel data from Chinese listed companies over the period 2012–2022, the findings indicate that digital transformation significantly suppresses tax avoidance behavior and contributes to a healthier tax environment. Further analysis reveals that downside risk, managerial emotional tone, and political cost function as important mediating mechanisms. Specifically, digital transformation discourages tax avoidance by lowering downside risk and reducing political costs; however, it may simultaneously strengthen managerial optimism, which can encourage more aggressive tax-planning behavior. The results also demonstrate that the restraining effect of digital transformation is evident across different types of firms, with stronger impacts observed among small and medium-sized enterprises and non-state-owned firms. Overall, this study provides important policy implications for governments seeking to improve tax governance in the digital era and extends the literature on the relationship between digital transformation and corporate tax behavior.
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