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

Abstract

The objective of this study is to analyze the relationship between state ownership (SO) and the tax avoidance practices of companies listed on the Brazilian capital market. This research fills two gaps. The first refers to the absence of metrics capable of capturing the proportional influence of the State on corporate ownership structures, overcoming the use of binary variables. The second concerns the lack of integrated theoretical approaches that explain the relationship between SO and tax avoidance practices. Ownership structure is a central element of corporate governance and takes on special importance in emerging economies, such as Brazil, where the State acts as both a policymaker and a relevant shareholder. The study contributes to the theoretical, methodological, and practical advancement of the tax avoidance literature, providing evidence that state ownership tends to mitigate aggressive tax practices, offering valuable insights for managers, investors, and policymakers. Based on companies listed on B3 S.A. – Brasil, Bolsa, Balcão from 2010 to 2023, ordinary least squares and quantile regression models were applied. The presence of the State in corporate ownership structures inhibits aggressive tax avoidance practices, promoting a more conservative tax management approach aligned with the public interest. The study offers three main contributions: i) methodological innovation by modeling SO as a continuous component of the shareholding structure; ii) refinement of tax behavior measurement by proposing adjustments to the normalized differential effective tax rate, making the metric more adherent to the Brazilian context; and iii) an unprecedented integration of agency, transaction costs, and property rights theories into a unified framework that explains state influence on corporate tax behavior.