Does Corporate Product Reputation Affect Tax Planning? Evidence from the Recognition of Well-Known Trademarks in China
Prof. Qiang Wu
Professor
School of Accounting and Finance
Hong Kong Polytechnic University
Prior studies find limited evidence on the ex-post reputational costs of tax avoidance. In this paper, we rely on the recognition of well-known trademarks in China to examine whether product-related reputational concerns lead firms to engage in less tax avoidance. The recognition of well-known trademarks leads to a significant increase in the popularity and reputation of a firm’s products and, hence, provides an ideal setting to test the ex-ante effect of product reputation on corporate tax planning. Based on a difference-in-differences identification strategy, we find that firms with well-known trademarks exhibit a lower level of tax avoidance, and this effect is concentrated in firms with more product market competition, fewer business segments, more intensive media coverage, and lower pre-event product reputation. Overall, our study contributes to the tax literature by documenting a causal effect of product reputational concerns on corporate tax planning.
