The state as shareholder and tax authority: Effects of state ownership on corporate tax avoidance

Abstract

ABSTRACT This study aims to analyze the relationship between state ownership (SO) and the tax avoidance practices of firms listed on the Brazilian capital market. The research addresses two gaps in the literature. The first concerns the absence of metrics able to capture the State's proportional influence within firms' ownership structures, moving beyond the use of binary variables. The second relates to the scarcity of integrated theoretical approaches that explain the relationship between SO and tax avoidance practices. Ownership structure is central to corporate governance and is especially important in emerging economies such as Brazil, where the State acts as both a policymaker and a major shareholder. This study contributes to the theoretical, methodological, and practical advancement of the tax avoidance literature by providing evidence that state ownership tends to mitigate aggressive tax practices, with implications for managers, investors, and policymakers. Drawing on firms listed on B3 S.A. - Brasil, Bolsa, Balcão over the period from 2010 to 2023, ordinary least squares and quantile regression models were estimated. The State's presence in firms' ownership structures is associated with less aggressive tax avoidance practices, promoting more conservative tax management aligned with the public interest. The study offers three main contributions: (i) a methodological innovation that models SO as a continuous component of the ownership structure; (ii) an improved measurement of tax behavior by proposing adjustments to the normalized differential effective tax rate, making it more suitable to the Brazilian context; and (iii) a novel integration of agency theory, transaction cost economics, and property rights theory into a unified framework that explains state influence on corporate tax behavior.