An empirical study on anti-corruption efforts and tax avoidance: Evidence from Mongolia

In this paper, we investigate the impact of anti-corruption efforts on tax avoidance, which has not been considered in Mongolia. Our prior study aimed to reveal corporate tax avoidance within Mongolia. The findings indicated that over half of all sample entities engage in tax avoidance, both in the short and long term. Building upon this empirical evidence, we have proceeded with further research in this area. To achieve this, we analyze the number of corruption cases that were successfully resolved in court, along with the reimbursements made to the government. Based on our analysis, we propose that these resolved cases and reimbursements are likely to impact corporate tax avoidance. Here, we employ GAAP ETR measurement method by Dyreng to detect tax avoidance in entities, supplemented by the CASH ETR for additional analysis. Using panel data consisting of 106,286 firm-year observations, encompassing 15,184 distinct entities across the years 2013-2019, we find that there is a significant and negative relationship between anti-corruption efforts and tax avoidance. In conducting robustness checks on the main findings, we vary the estimation method and dependent variable by applying the CASH ETR. The results of these additional analyses consistently support the main findings, confirming their robustness.