Variable definitions
| Variable | Definition |
|---|---|
| Cash ETRit | (Income tax payablei,t−1 + income tax expensesit − income tax payableit)/pretax incomeit |
| GAAP ETRit | income tax expensesit/pretax incomeit |
| Strategyit | strategy score is computed following Higgins et al. (2015), and details are illustrated in Section 3.2 |
| Prospectit | a dummy variable for prospector that equals 1 if the firm's Strategy score is equal to or higher than 24 and 0 otherwise |
| Defendit | a dummy variable for defender that equals 1 if the firm's Strategy score is equal to or lower than 6 and 0 otherwise |
| PCit | political connections, proxied by SOE, PC_Board, and PC_MGT |
| SOEit | a dummy variable that equals 1 if a firm's ultimate controller is a government, and 0 otherwise |
| PC_Boardit | a dummy variable that equals to 1 if a firm has at least one board member who worked in a government or military organization or is a member of NPC or CPPCC, and 0 otherwise |
| PC_MGTit | a dummy variable that equals to 1 if a firm has at least one executive who worked in a government or military organization or is a member of NPC or CPPCC, and 0 otherwise |
| SIZEit | firm size, calculated as the natural log of total assets in year t |
| ROAit | return on assets, calculated as the pretax income for firm i in year t divided by total assets for firm i in year t−1 |
| Debtit | debt ratio, calculated as total long-term debt divided by beginning of the year total assets |
| Intanit | intangible assets intensity, calculated as intangible assets divided by beginning of the year total assets |
| Inventoryit | inventory intensity, calculated as inventory divided by beginning of the year total assets |
| Cross_listit | a dummy variable which equals to 1 if a firm is cross listed in a stock exchange outside mainland China in year t, and 0 otherwise |
| New_PC_Boardit | equals1 if a firm changes from being politically unconnected (PC_Board = 0) in year t−1 to being politically connected (PC_Board = 1) in year t, and 0 otherwise |
| New_MGT_Boardit | equals1 if a firm changes from being politically unconnected (PC_MGT = 0) in year t−1 to being politically connected (PC_MGT = 1) in year t, and 0 otherwise |
| ΔETRit | ETRit − ETRi,t−1 |
| PC_Board_hatit | predicted value of PC_Board from the first stage regression |
| PC_MGT_hatit | predicted value of PC_MGT from the first stage regression |
| Variable | Definition |
|---|---|
| (Income tax payable | |
| income tax expenses | |
| strategy score is computed following | |
| a dummy variable for prospector that equals 1 if the firm's Strategy score is equal to or higher than 24 and 0 otherwise | |
| a dummy variable for defender that equals 1 if the firm's Strategy score is equal to or lower than 6 and 0 otherwise | |
| political connections, proxied by | |
| a dummy variable that equals 1 if a firm's ultimate controller is a government, and 0 otherwise | |
| a dummy variable that equals to 1 if a firm has at least one board member who worked in a government or military organization or is a member of NPC or CPPCC, and 0 otherwise | |
| a dummy variable that equals to 1 if a firm has at least one executive who worked in a government or military organization or is a member of NPC or CPPCC, and 0 otherwise | |
| firm size, calculated as the natural log of total assets in year | |
| return on assets, calculated as the pretax income for firm | |
| debt ratio, calculated as total long-term debt divided by beginning of the year total assets | |
| intangible assets intensity, calculated as intangible assets divided by beginning of the year total assets | |
| inventory intensity, calculated as inventory divided by beginning of the year total assets | |
| a dummy variable which equals to 1 if a firm is cross listed in a stock exchange outside mainland China in year | |
| equals1 if a firm changes from being politically unconnected ( | |
| equals1 if a firm changes from being politically unconnected ( | |
| ETR | |
| predicted value of | |
| predicted value of |
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