Description:
How does share pledge affect firms’ tax avoidance? Financial theories predict effect depends on the relative importance of two contradictory effects: Financial Constraint Effect and Price Supporting Effect. Using share pledge new policy (SPNP) as an exogenous shock, we study the effect of share pledging on tax avoidance. The main findings suggest that on average, SPNP implementation significantly increases the tax avoidance level of treated firms compared to control firms, which empirically supports the domination of Price Supporting Effect over Financial Constraint Effect. We also test the earning management as an important channel through which share pledging influence tax planning