Data elements and corporate tax avoidance in China: From the perspective of internal and external information effects

Against the backdrop of the digital economy, firms’ use of data elements has expanded rapidly and may carry important implications for corporate tax behavior. Using panel data on Chinese A-share listed companies from 2009 to 2023, this paper constructs a firm-level index of data-element application based on textual analysis and examines its impact on tax avoidance through internal-information and external-transparency channels. The results show that greater data-element application is significantly associated with lower effective tax rates, a pattern consistent with greater tax avoidance. Mechanism-related analyses suggest that data-element application lowers forecast error, an internal information channel related to tax planning. It also improves overall disclosure quality, which may partially offset the negative association between data-element application and effective tax rates. The interaction results further suggest a stronger marginal pattern for the internal-information proxy than for the disclosure-quality proxy. The main findings are robust to a range of alternative specifications and additional checks designed to alleviate endogeneity concerns. The negative association appears stronger in subsample regressions for smaller listed firms, non-state-owned firms, high-tech firms, and firms in eastern regions. Additional analyses do not show statistically robust evidence that the current digitalization of tax administration fully offsets the negative association between data-element application and effective tax rates during the sample period. Overall, this study provides firm-level evidence on the tax-related consequences of data-element application and offers implications for tax governance in the digital era.