Tax avoidance and tunneling : empirical analysis from an agency perspective

Koon Hung CHAN, Phyllis Lai Lan MO, Tanya TANG

Research output: Journal PublicationsJournal Article (refereed)peer-review

37 Citations (Scopus)


Taking advantage of the agency conflicts between controlling shareholders and minority shareholders and the weak corporate governance in a transition economy, we investigate the relationship between tax avoidance (proxied by effective tax rates) and tunneling (proxied by related-party lending) from a principal-principal agency perspective. We find that corporate tax avoidance is positively associated with tunneling after controlling for firm characteristics, corporate governance, and institutional factors that affect tunneling. This relationship is more pronounced for firms with cash shortages and in periods with relatively weak investor protection. In addition, the value-enhancing implications of tax avoidance are reduced for firms in which tax avoidance is highly correlated with tunneling. By demonstrating the existence of tunneling-related tax avoidance and its economic consequences, this study sheds light on the emerging agency perspective on tax avoidance.
Original languageEnglish
Pages (from-to)49-66
Number of pages18
JournalJournal of International Accounting Research
Issue number3
Publication statusPublished - Oct 2016
Externally publishedYes


  • firm value
  • principal-principal agency conflicts
  • tax avoidance
  • tunneling

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