Tax avoidance and CEO turnover: evidence from China

As the literature documents inconclusive evidence on whether tax avoidance affects CEO turnover, we examine the impact of tax avoidance on forced CEO turnover and the moderating effect of ownership structure, political connections and regional tax enforcement on this relationship. Using data on Chinese listed firms involving 10,653 observations for the 2011–2018 period, we test our hypotheses using logistic regressions. We find that tax avoidance is positively associated with forced CEO turnover, suggesting that tax-avoiding firms are more likely to face leadership crises. Furthermore, the positive association is pronounced for firms that are state-owned, lack political connections or are located in developed regions with active tax enforcement. Our results, which are robust to alternative proxies and endogeneity tests, should interest policymakers and investors as they demonstrate the impact of tax avoidance on corporate governance and leadership.