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NTU Management Review Vol. 33 No. 2 Aug. 2023

between standardized-format reports and their readability. It is recommended that future
research examine the consequences of standardized-format reports, given that many firms
may use such formats for their financial reports. Finally, we suggest that future studies
cooperate with tax authorities to obtain first-hand corporate taxation data in order to enable

the precise measurement of the degree of tax avoidance and to yield more practical results.

6. Originality/Contribution

The contributions of this research are as follows. First, we contribute to the current
literature by examining the effect of corporate tax avoidance on a firm's information
environment through the use of a financial report readability measure, which can help
determine the level of vagueness in the information presented. We present evidence of

a negative relationship between corporate tax avoidance and the readability of financial
statements, indicating that firms may deliberately lower the readability of their reports
to obscure their true tax-saving strategies. This finding highlights the potential negative
consequences of such practices.

Second, this study contributes to the literature by investigating the relationship
between tax avoidance and financial report readability in Mandarin Chinese, which has
not been examined before. Given the narrative characteristics of Mandarin Chinese, we
employ multiple indexes to comprehensively evaluate the impact of readability. Thus, this

study enriches the related literature by providing non-Western evidence.
Finally, this research has practical implications. Since some firms manipulate their
financial reports to conceal fraudulent behaviors, the monitoring authorities should
strengthen their monitoring power and develop policies to minimize such manipulation.

Next, hiring an industry specialist auditor is an effective corporate governance method.
We propose that auditor industry expertise helps a firm to perform appropriate adjustments
to its financial reports, build strong internal monitoring mechanisms, and engage in
comprehensive corporate governance to raise the quality of its financial reports.

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