International exposure and tax avoidance activities : an investigation of Chinese Listed Companies

China has witnessed a substantial growth in both foreign trades and foreign direct investments in the past decades. Due to this increasing exposure of international business, listed companies in China have expanding amount of cross-border transactions and multinational investments. To explore the impacts of international exposure on firms’ business decisions, this paper aims to investigate whether corporate internationalization affects tax avoidance activities in China. Based on 2,234 firm-year observations during the period 2001–2007, our empirical analyses show that firms that have top management teams (TMTs) with international exposure are more likely to shift profits to low-tax rate period than are firms without such TMTs. TMT’s international exposure is also found to be associated with lower effective tax rates (i.e., higher overall tax avoidance activities). By contrast, we do not find any significant difference in overall tax avoidance activities between firms with and without foreign subsidiaries. These findings are robust after controlling for various model specifications. Our research highlights the importance of international exposure of corporate management in affecting tax avoidance activities during globalizing China. The findings would be insightful for investors, accounting practitioners, and tax regulators in assessing tax avoidance activities of firms. They would also be helpful for corporations in selecting appropriate executives in devising tax strategies.