Monitoring Incentives and Tax Planning – Evidence from State-Owned Enterprises

This study examines the association between state owners’ monitoring incentives and the tax planning activities of state-owned enterprises. We distinguish between state owners that directly benefit from state-owned enterprises’ income tax payments and those that do not. In our empirical tests, we exploit the variation of state ownership in Germany, making our findings generalizable to other market economies. Our results indicate that state ownership is not associated with less tax planning unless the state owner directly benefits from higher tax payments. We also provide evidence that this effect translates to higher tax revenues at the municipality level. Our results are robust to various specifications and suggest that shareholders’ monitoring incentives are a determinant of a firm’s tax planning activities.