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臺大管理論叢
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28
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1
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these reverse causality issues that may lead to biased ordinary least squares (OLS)
estimates, we employ a two-stage regression analysis Heckman (1979) as the robustness
check. The results remain the same.
The study contributes to a few streams of literature. First, prior studies (e.g., Rego,
2003) argue that firms can avoid taxes through structured transactions among different
entities. We identify a measure, the number of layers, which can serve as organizational
complexity as well as opaque information environment for accelerating corporate tax
avoidance. Second, we contribute to the parent-subsidiary literature. Prior studies
examining tax avoidance activities have traditionally focused on corporate-level
influences (e.g., Rego, 2003). Only few studies to date examine the characteristics of
subsidiaries within a firm (e.g., Dyreng, Hanlon, and Maydew, 2012; Shroff, Verdi, and
Yu, 2014). Our study takes a close look at the internal organizational structure of a parent-
subsidiary firm and helps understand the influence of lower organizational levels within
the pyramidal firms on tax avoidance. Third, we contribute to the literature on corporate
pyramids (e.g., Bebchuk, Kraakman, and Triantis, 2000; Claessens et al., 2002; La Porta et
al., 1999). The literature on corporate pyramids has so far almost exclusively focused on
the ownership structure and corporate value, and paid little attention to tax activities.
The paper proceeds as follows. Section 2 provides related literature review and
develops hypotheses. Section 3 outlines the research design. Section 4 describes the
sample selection and descriptive statistics. Section 5 discusses the results. Section 6
introduces additional analyses, and Section 7 is our conclusion.
2. Literature Review and Hypothesis Development
2.1 Corporate Pyramidal Structure
Many firms around the world are organized into pyramid-like structures (La Porta et
al., 1999; Claessens et al., 2000; Claessens et al., 2002; Khanna and Yafeh, 2005).
Pyramidal ownership structure is defined as a business entity whose ownership structure
displays a top-down chain of control (La Porta et al., 1999). In such a multi-layer
organizational structure, the holding company (i.e., the parent company) at the apex of an
investment structure indirectly controls firms sitting on the lowest tier of investment
structure through intermediate companies. For example, Figure 1 shows the investment
structure of Far Eastern Department Store, with the parent company (Far Eastern
Department Store) indirectly controlling the lowest-tier firm (Beijing Xidan Pacific
Department Stores) at layer 5 through Pacific Current Investment (layer 1), Pacific Chong