Does digital tax enforcement alleviate corporate financial misconduct? An information perspective
Qiaozhe Guo, Lexin Zhao, Haohao ShangPurpose
This study examines whether digital tax enforcement (DTE) reduces corporate financial misconduct (CFM) using China's Golden Tax Project III as a quasi-natural experiment. It also investigates the mediating role of internal controls and the moderating role of analyst scrutiny.
Design/methodology/approach
The sample includes 35,979 firm-year observations of Chinese A-share listed firms from 2011 to 2022. A difference-in-differences model is employed, with CFM measured by the number of misconduct cases, DTE by GTP III implementation, and analyst scrutiny by the number of analyst reports. Control variables include leverage, ROA, cash flow, firm age, size, and Tobin's Q, with firm, year, and industry fixed effects.
Findings
The findings show that DTE significantly reduces corporate financial misconduct, with improved internal controls serving as a key mechanism. Analyst scrutiny amplifies this deterrent effect, indicating a complementary relationship between digital enforcement and external monitoring. Interestingly, analyst scrutiny alone is associated with more misconduct, suggesting a dual role. The results remain robust across various sensitivity tests, including parallel trend and placebo checks.
Originality/value
This study is the first to use a quasi-natural experiment to reveal that digital tax enforcement curbs corporate financial misconduct, with internal control as the key mechanism. It also clarifies the dual role of analyst scrutiny – positively associated with misconduct alone but reinforcing the deterrent effect of digital enforcement. These findings provide new evidence on the synergy between digital regulation and market-based monitoring.