Domestic geographic disclosure aggregation and corporate tax avoidance: Evidence from China

This study examines whether the aggregation of domestic geographic disclosures influences corporate tax avoidance in China. We find a positive and statistically significant association between domestic geographic segment aggregation and tax avoidance. Our results are robust to alternative measures of domestic geographic segment aggregation and various endogeneity tests. Cross-sectional analyses show that the positive association is stronger for firms with weak tax enforcement. Finally, mechanism analyses indicate that higher levels of domestic geographic disclosure aggregation are associated with greater tax avoidance, both directly and indirectly through the domestic-to-domestic income shifting channel. This study extends our understanding of overseas geographic segment disclosure aggregation and tax avoidance by offering new evidence on the role of domestic geographic disclosure aggregation. Our study should also inform policymakers involved in debates about financial reporting standards and the use of domestic geographic information disclosures in financial reports.