Pyramidal structure, political intervention and firms' tax burden: Evidence from China's local SOEs

Using a sample of Chinese firms, we examine the influence of state-pyramids on corporate tax burden. We find results that state-pyramidal layers are significantly and negatively associated with effective tax rates, indicating that pyramids formed by the state protect local state-owned enterprises (SOEs) from political intervention. The results hold after controlling for potential endogeneity. We further find evidences suggesting that taxation is one of the channels through which state-controlled pyramids increase firm value. Our study contributes to both corporate finance and corporate tax literatures by documenting the role of pyramidal organizational structures in reducing local SOEs' tax burden. •Pyramidal layers in local SOEs are significantly and negatively associated with ETRs.•Pyramidal layers are not associated with corporate tax burden for non-SOEs.•Taxation is one of the channels through which state-pyramids increase firm value.