Finance Research Letters 57 (2023) 104271

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Finance Research Letters

journal homepage: www.elsevier.com/locate/frl

Does corporate digital transformation affect the level of corporate

tax avoidance? Empirical evidence from Chinese listed
tourism companies
Guo Tiantian a, b, Chen Hailin c, *, Xiao Zhou d, Shanru Ai e, Wang Siyao f
a
Food Safety Research Center, Wuhan Polytechnic University, Key Research Institute of Humanities and Social Sciences of Hubei Province, Wuhan
430048, China
b
School of Management, Wuhan Polytechnic University, Wuhan 430048, China
c
School of Economics and Trade, Guangdong University of Foreign Studies, Xiaoguwei, Panyu District, Guangzhou 510006, China
d
School of Management, Wuhan Polytechnic University, Wuhan, Hubei 430040, China
e
School of Economics and Management, Huazhong Agricultural University, Wuhan, 430070, China
f
Beijing Sankuai Online Technology, Beijing, 101100, China

A R T I C L E I N F O A B S T R A C T

Keywords: Based on the data of China’s A-share listed tourism companies from 2019 to 2022, this paper
Tourism enterprises empirically tests the impact and mechanism of digital transformation of tourism enterprises on
Digital transformation tax avoidance. The results show that the digital transformation of tourism enterprises will
Corporate tax avoidance
significantly inhibit the tax avoidance of enterprises, and the digital transformation of enterprises
inhibits tax evasion by improving the level of internal control. Therefore, the digital trans­
formation of tourism can inhibit the aggressive tax avoidance behavior of managers seeking
private interests through effective governance mechanisms, and make managers weigh the ben­
efits and costs of tax avoidance, thus affecting the corporate tax avoidance strategy. This study
expands the research in the fields of corporate digital transformation and corporate tax avoid­
ance, and provides relevant enlightenment for promoting the deep integration of digital economy
and real economy.

1. Introduction

Tax is a legal obligation and an important cost in the operation of enterprises, which directly affects the cash flow and profit scale of
enterprises. It is also an economic means for the government to participate in the distribution of enterprise results, and thus realizes the
compulsory sharing of enterprise cash flow. It has become a common phenomenon in the world for enterprises to implement a series of
tax avoidance behaviors in order to reduce tax liability (Hanlon and Heitzman, 2010). Tax avoidance turns the resources that should
have been handed over to the state to the enterprises for their own development, which directly reduces the cash outflow of enterprises
and increases the net profit of enterprises (Rego and Wilson, 2012). The COVID-19 pandemic has brought a great impact on the tourism
industry, including hotels, tourism and services, which has reduced the profits of enterprises. How to reasonably avoid tax for tourism
enterprises under the impact of COVID-19 has become a hot topic of common concern for the government, practical circles and
academia.

* Corresponding author.
E-mail address: Chenhailin@gdufs.edu.cn (C. Hailin).

https://doi.org/10.1016/j.frl.2023.104271
Received 2 July 2023; Received in revised form 23 July 2023; Accepted 25 July 2023
Available online 27 July 2023
1544-6123/© 2023 Published by Elsevier Inc.
G. Tiantian et al. Finance Research Letters 57 (2023) 104271

Technological innovation in the era of digital economy has given rise to new means of corporate governance, providing convenient
conditions for stakeholders to participate in corporate governance, effectively improving information transparency in the chain of
corporate governance (Liu et al., 2011), and having a significant impact on corporate operation and management behaviors. Tax
avoidance is actually the result of enterprises’ balancing of costs and benefits, and has become one of the important decisions in the
process of enterprise management (Hanlon and Heitzman, 2010; Badertscher et al., 2013). While improving the information envi­
ronment and governance system, will enterprises’ digital transformation also affect their decision-making of tax avoidance behavior?
What is the mechanism of this effect? The exploration of this issue is helpful to evaluate the implementation effect of enterprise digital
transformation, further deepen the understanding of digital enabling enterprise governance from the perspective of tax avoidance, and
provide empirical evidence for the government to actively promote enterprise digital transformation.
Based on this, this paper examines the impact of tourism enterprises’ digital transformation on tax avoidance behavior, and further
studies its mechanism, heterogeneity and economic consequences, taking the tourism enterprises listed on the A-share main board of
Shanghai and Shenzhen Stock exchanges from 2019 to 2022 as samples. The contribution of this paper is mainly in the following three
aspects: first, under the background of the comprehensive construction of "digital China", this paper expands and deeps the under­
standing of the impact of digitalization on the financial behavior of micro enterprises from the micro perspective of corporate tax
avoidance, enriches the research on the economic consequences of corporate digitalization, and provides an empirical basis for the
government to vigorously promote the digital transformation of enterprises; Second, from the perspective of digital transformation,
this paper analyzes the impact of corporate strategic decisions on tax avoidance behavior, enriches the research on the influencing
factors of corporate tax avoidance behavior, and provides reference for improving the level of national tax collection and adminis­
tration. Thirdly, this paper examines the mechanism of corporate digital transformation influencing tax avoidance from the
perspective of financing constraints, which opens the "black box" between corporate digital transformation and tax avoidance and
provides empirical evidence for insight into the logical relationship between them.

2. Literature review and hypothesis formulation

Enterprise digital transformation refers to the use of digital technology to adjust and transform the operation management, business
process and other internal functional activities of the enterprise, and finally realize the digital technology to empower the enterprise
value chain, supply chain, innovation chain and all-round management. Digital transformation can improve the ability of corporate
governance (Vial, 2019). In the traditional view, tax avoidance is to improve the company’s after-tax profit, cash flow and corporate
value. According to the agency theory, tax avoidance activities under the separation of two rights provide opportunities for man­
agement’s rent-extraction behavior and opportunistic behaviors such as tunneling by major shareholders, and the management seeks
personal gains from the wealth saved by tax avoidance, especially for companies with poor governance mechanisms (Fryans et al.,
2018). The reason why tax avoidance can lead to rent-extraction behavior and opportunistic behavior is that the more cash flow saved
by tax avoidance activities, the more resources the management can use for self-interested behavior. On the other hand, the man­
agement deliberately concedes the details of tax avoidance to avoid being discovered by the tax authorities, which reduces the
transparency of information and hides the real financial information, making it difficult for shareholders and other stakeholders to
evaluate and effectively supervise the management through financial performance. Regardless of the traditional view or the agency
view, the management should weigh the benefits and costs of tax avoidance. Digital transformation can inhibit the aggressive tax
avoidance behavior of management in order to seek private interests through effective corporate governance mechanism. Specifically,
the governance mechanism and information intermediary effect generated by the corresponding internal control quality and infor­
mation transparency make the management weigh the benefits and costs of tax avoidance, thus affecting the corporate tax avoidance
strategy.
Corporate digital transformation can inhibit tax avoidance by improving the quality of internal control. The process of enterprise
digital transformation helps enterprises to improve the quality of internal control. With the comprehensive application of digital
technology in enterprise operation, various internal functional activities such as marketing mode, production mode, product design
and research and development mode of enterprises have been adjusted and transformed (Liu et al., 2011). The application of digital
technology enables enterprises to share data with each other, and also strengthens the cooperation and cooperation of various
functional departments within the enterprise. The horizontal and vertical business of various functional departments can be integrated,
so as to build a network organization structure, and the enterprise value chain becomes a customer-centered ring value chain, which
makes the enterprise organization tend to be flat. The management power will be decentralized, so that managers better understand
the front-line situation, strengthen the integration and optimal allocation of resources, help enterprises according to the COSO internal
control framework, improve the scientific and effective management of enterprises. Moreover, the application of digital technology in
enterprises improves the quality of accounting information disclosure, changes the relationship between shareholders and manage­
ment, thus reducing agency costs (Fryans et al., 2018), alleviating the "principal-agent" problem, forming an internal governance
environment more conducive to digital transformation, and thus significantly improving the internal control ability of enterprises. The
internal control of enterprises is compliance-oriented, and the higher the quality of internal control is, the more helpful it is to reduce
the risk of enterprise violations of laws and regulations. High quality internal control plays a governance role, effectively supervises the
opportunistic behavior of the management, inhibits the improper behavior of the management, and thus inhibits the aggressive tax
avoidance behavior of enterprises seeking private interests. In addition, the management will better balance the benefits and risks of
aggressive tax avoidance policies, thus reducing tax avoidance behaviors (Edwards et al., 2016). In addition, corporate tax avoidance is
not only the management’s tax avoidance decision, but also involves procurement, production, sales and other business activities,
which requires the full cooperation of accounting and tax departments and good communication with tax collection departments.

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G. Tiantian et al. Finance Research Letters 57 (2023) 104271

Therefore, digital transformation can inhibit corporate tax avoidance by improving the quality of internal control.
Hypothesis. Corporate digital transformation significantly inhibits corporate tax avoidance.

3. Research design

3.1. Sample selection and data sources

This paper selects A-share listed tourism companies in Shanghai and Shenzhen from 2007 to 2020 as research samples, and
conducts the following screening: (1) excluding financial and insurance companies; (2) excluding the IPO companies in that year; (3)
excluding companies subject to special treatment by the stock exchange; (4) excluding companies with pre-tax profit less than or equal
to 0, effective income tax rate less than 0 or greater than 1, and income tax expense less than 0; (5)Excluding the companies with
missing data, 238 sample observations are finally obtained. The annual report data of listed companies are from the official websites of
Shenzhen Stock Exchange and Shanghai Stock Exchange, the nominal tax rate data are from Wind database, and the other financial
data are from CSMAR database. In addition, in order to control the impact of extreme values, this paper winsorizes all continuous
variables at the level of 1% and 99%.

3.2. Empirical model and variable description

In order to test the relationship between corporate digital transformation and tax avoidance, the following model is constructed:
Taxavoid = α0 + α1 Dig + α2 Σ Controls + εi

(1) Explained variable. This paper refers to Desai and Dharmapala (2006), to measure tax avoidance (Taxaviod), and uses the
accounting - tax difference (BTD) to measure the degree of corporate tax avoidance. BTD = (accounting profit before tax -
taxable income) / total assets, where taxable income = current income tax expense / nominal tax rate. The greater the BTD is,
the higher the degree of tax avoidance is. To facilitate the presentation of regression results, BTD is multiplied by 100 in this
paper.
(2) Explanatory variables. This paper refers to the practice of Verhoef et al. (2019), and uses the word frequency of "digital
transformation" in the annual report of listed companies to measure the digital transformation of enterprises. In view of the
right-skewed distribution of the word frequency, this paper uses the natural logarithm of the word frequency plus 1 to measure
the degree of enterprise digital transformation (DT).
(3) Control variables. In order to control the influence of other factors on corporate tax avoidance, referring to the research of Liu
et al. (2011), the following control variables are added. Including Big4 audit, SOE, SIZE of the company, DUAL, Bsize, BM, ROE,
Lev, FirstHold, Firsthold. And controlling year, industry fixed effects and firm fixed effects.

3.3. Descriptive statistics of variables

Table 1 shows the descriptive statistics of this paper. The mean value of enterprise Digital transformation (Dig) is 0.568, the
minimum value is 0, and the maximum value is 4.328, indicating that there are large differences in digital transformation among
enterprises. The mean of accounting tax difference (BTD) is 0.035, and the median is 0.110. The results of corporate tax avoidance are
consistent with previous literature, and other descriptive statistics are also consistent with previous research results.

Table 1
Descriptive statistics.
Variables Mean Median Standard Minimum Maximum Sample

BTD 0.035 0.110 2.282 6.621 8.312 238

Dig 0.568 0.000 1.143 0.000 4.328 238
KZ 0.371 0.523 2.232 5.328 3.927 238
Trans 0.385 0.362 0.163 0.018 0.762 238
Size 21.125 23.148 1.312 20.032 25.342 238
Lev 0.432 0.456 0.183 0.071 0.872 238
ROA 0.038 0.051 0.041 0.001 0.235 238
Growth 0.176 0.123 0.432 0.352 2.913 238
BM 0.624 0.713 0.253 0.134 1.154 238
TOP1 0.358 0.372 0.146 0.121 0.652 238
FA 0.211 0.235 0.138 0.001 0.634 238
IA 0.034 0.042 0.012 0.000 0.452 238
Dual 0.312 0.000 0.432 0.000 1.000 238
CFO 0.023 0.032 0.065 0.125 0.332 238

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G. Tiantian et al. Finance Research Letters 57 (2023) 104271

4. Empirical results

4.1. Baseline regression

The digital transformation of enterprises promotes the deep integration of digital technology and enterprise operation and man­
agement process, and has a significant impact on various operation and financial decisions of enterprises (Vial, 2019), Tax avoidance,
as a financial activity implemented by enterprises to reduce tax liabilities, is also bound to be affected by enterprises’ digital trans­
formation. Therefore, in order to investigate whether the digital transformation of enterprises will affect their decision-making of tax
avoidance behavior, this paper uses Model (1) to conduct regression analysis on BTD with DT as explanatory variable. The regression
results are shown in Table 2. The results show that there is a significant negative correlation between DT and BTD regardless of
whether control variables are added. This shows that corporate digital transformation helps to inhibit corporate tax avoidance
behavior and reduce the degree of corporate tax avoidance, which verifies the hypothesis of this paper.

4.2. Robustness test

This paper uses the accounting tax difference (DBTD) and the difference between nominal tax rate and effective tax rate (Rdiff) after
deducting the impact of accrued profits to re-measure the degree of corporate tax evasion. The regression results are shown in columns
(1) – (2) of Table 3. After changing the measurement method of corporate tax avoidance, the regression coefficient between corporate
digital transformation and tax avoidance is still significantly negative, and the result remains unchanged.

4.3. Endogeneity test

Firstly, in order to solve the problem of sample self-selection, propensity score matching (PSM) was used to test the endogeneity of
the conclusions of this paper. The results of regression analysis after matching are shown in column (1) of Table 4. The regression
coefficient between enterprise digital transformation and tax avoidance is still significantly negative at the level of 1%, which supports
the original hypothesis. Secondly, in order to solve the problem of reverse causality, the two-stage least square method (2SLS) was used
for testing, and the number of regional fixed lines (PostalService) was used as the instrumental variable for reference to the research of
Zhao et al. (2021). In Table 4, columns (2) – (3) report the regression results of the two stages. Considering the endogenous problem,
the digital transformation of enterprises still has a significant negative impact on tax evasion. Therefore, the test passes and the results
support the original hypothesis of this paper.

Table 2
Regression results of digital transformation and corporate tax avoidance.
Variables BTD BTD

Dig 0.032 * * * 0.056 * * *

(2.72) (3.49)
Size 0.001*
(1.72)
Lev − 0.023***
(− 11.32)
ROA 0.105**
(2.43)
Growth 0.342*
(1.83)
BM 0.002
(0.69)
TOP1 − 0.005***
(− 2.99)
FA 0.023
(0.56)
IA 0.293*
(1.81)
Dual 0.001
(0.20)
CFO 0.032**
(2.52)
Ind Yes Yes
Year Yes Yes
Cons 0.028*** 0.014
(7.23) (1.5)
N 238 238
AdjR2 0.053 0.112

The value of p is in parentheses,* p < 0.10, ** p < 0.05, *** p < 0.01. The same below.

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G. Tiantian et al. Finance Research Letters 57 (2023) 104271

Table 3
Robustness test results.
(1) (2)

Dig − 0.013*** − 0.021***

(− 4.28) (− 6.27)
Controls Yes Yes
Ind Yes Yes
Year Yes Yes
Controls 0.025** 0.031**
(2.21) (2.56)
N 238 238
Adj R2 0.149 0.161

The value of p is in parentheses,* p < 0.10, ** p < 0.05, *** p < 0.01. The same below.

Table 4
Endogeneity test results.
PSM regression Instrumental variable
The first stage The second stage
(1) (2) (3)

Dig − 0.015*** − 0.032***

(− 5.21) (− 5.23)
PostalService 0.002**
(2.52)
Controls Yes Yes Yes
Ind Yes Yes Yes
Year Yes Yes Yes
Controls 0.001 0.020*** 0.032***
(0.21) (4.32) (3.56)
N 238 238 238
Adj R2 0.153 0.025 0.132

The value of p is in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01. The same below.

4.4. Mechanism analysis

The above empirical analysis results show that the digital transformation of enterprises significantly inhibits the tax avoidance of
enterprises. Then, through what channels does the digital transformation of enterprises inhibit the tax avoidance of enterprises?
According to the analysis in the hypothesis, this part will empirically test the two mechanisms of internal control and information
transparency. The intermediary effect model is used to verify the mechanism of internal control and information transparency. The
results are shown in (1) of Table 5. The regression coefficient of enterprise digital transformation on the intermediary variable
(In_Control) is significantly positive at the level of 1%, indicating that enterprise digital transformation can improve the quality of
internal control. In column (2), regression results of both intermediary variables and explanatory variables are added under the
measurement method of corporate tax avoidance respectively. It can be seen that internal control plays a partial intermediary role
between digital transformation and tax avoidance.

Table 5
Mechanism test results.
(1) (2)
In_Cont BTD

Dig 0.635*** − 0.013***

(4.92) (− 5.23)
In_Cont − 0.002**
(− 2.53)
Controls Yes Yes
Ind Yes Yes
Year Yes Yes
Controls 0.732** 0.012***
(2.32) (4.25)
N 238 238
Adj R2 0.132 0.143

The value of p is in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01. The same
below.

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G. Tiantian et al. Finance Research Letters 57 (2023) 104271

5. Conclusion

Based on the data of China’s A-share listed tourism companies from 2019 to 2022, this paper examines the impact of corporate
digital transformation on tax avoidance behavior. The results show that corporate digital transformation can significantly inhibit tax
avoidance behavior by alleviating financial constraints and improving information transparency. Further research shows that the
inhibitory effect of corporate digital transformation on tax avoidance behavior is significantly heterogeneous among firms with
different agency costs and media attention. At the same time, corporate digital transformation significantly improves corporate value
by inhibiting tax avoidance behavior. This study not only expands and deeps the theoretical understanding of corporate digital
transformation and tax avoidance, but also provides a reference for the government to facilitate corporate digital transformation and
improve the ability of tax supervision. Based on the empirical results, this paper proposes the following policy recommendations:
First of all, digital transformation can effectively inhibit corporate tax avoidance. Tax regulatory authorities should make use of
digital technology to build a dynamic information disclosure platform and supervision platform interconnected with the internal
information system of enterprises, realize cross-platform integration of information, carry out whole-process and all- weather moni­
toring of corporate tax payment behavior, and greatly reduce the space for enterprises to evade tax. To improve the level of national tax
collection and administration. Secondly, digital transformation can significantly enhance corporate value by inhibiting corporate tax
avoidance. Encouraging, supporting and guiding corporate digital transformation should be included in the focus of government work,
so as to create a good external environment for enterprises to implement digital transformation. Enterprises themselves should also
seize the opportunities brought by the development of digital economy, actively carry out digital transformation, and reduce tax
avoidance. Enterprises themselves should also grasp the opportunities brought by the development of digital economy, actively carry
out digital transformation, reduce tax avoidance, enhance their own value, and achieve high-quality development. Finally, the
inhibitory effect of digital transformation on corporate tax avoidance is realized by alleviating financing constraints and improving
information transparency. Financial regulatory authorities should not only continue to deepen the reform of financial marketization
and effectively solve the problem of corporate financing constraints, but also improve the information disclosure system, further
consolidate the responsibility of information disclosure of enterprises and intermediaries, and improve the information transparency of
enterprises. In order to inhibit the behavior of enterprises to obtain private interests through tax avoidance. Lastly, digital trans­
formation can effectively inhibit the tax evasion behavior of tourism enterprises. Tax regulatory authorities should make use of digital
technology to build a dynamic information disclosure platform and supervision platform interconnected with the internal information
system of enterprises, achieve cross-platform integration of information, conduct whole-process and all-weather monitoring of the tax
payment behavior of enterprises, and greatly reduce the space for tax evasion of enterprises. We will raise the level of tax collection and
administration.

Funding

This research is supported by Guangdong Provincial Philosophy and Social Science Planning Fund(Grant No. GD22XYJ04)

CRediT authorship contribution statement

Guo Tiantian: Conceptualization. Chen Hailin: Writing – original draft. Xiao Zhou: Data curation. Shanru Ai: Formal analysis.
Wang Siyao: Visualization.

Data availability

The data that has been used is confidential.

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