Financial regulation and corporate tax avoidance: Evidence from China

Financial regulation can reshape corporate risk-taking, but its impact on tax behaviour remains underexplored. This paper examines how China’s New Asset Management Regulations (NAMR), which tighten oversight of shadow banking, affect corporate tax avoidance. Using NAMR as a quasi-natural experiment, we analyse A-share listed firms from 2012 to 2022 and estimate a generalized difference-in-differences model. We find that NAMR significantly increases tax avoidance for firms with a high short-term debt for long-term investment ratio, indicating that tighter external finance raises the marginal value of tax savings. This effect is more pronounced for non-high-tech firms, for firms in regions with weaker tax enforcement, and under higher economic policy uncertainty. Mechanism analyses suggest that compressed access to shadow bank funding and the loss of financial-channel income strengthen firms’ profit compensation motives, leading managers to substitute from financial arbitrage into tax avoidance. Overall, the study links macroprudential regulation to corporate tax behaviour and highlights that well-intentioned financial reforms may unintentionally shift firms from off-balance-sheet risk-taking toward more aggressive tax planning.