Employee education and corporate tax outcomes: Evidence from firm-level reporting

Abstract

Taking advantage of a unique financial reporting feature in the Chinese setting, this study examines whether the education level of a firm's rank-and-file employees is associated with its tax outcomes. We provide robust evidence that employee education is associated with reduced tax avoidance. Leveraging path analysis, we show that highly educated employees are related to corporate tax avoidance through a financial reporting channel and a corporate social responsibility (CSR) channel. In addition, we find that the main effect is more pronounced when employees have the right to voice their concerns and when the accounting department accounts for a greater portion of total employees. Finally, we show that employee education is associated with reduced tax risk. Overall, our study extends an emerging body of literature on the association between employee education and firm-related outcomes (e.g., Call, Campbell, Dhaliwal, & Moon Jr., 2017), along with finding another important determinant of corporate tax planning.