• Management & Information Systems Review
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• v.36 no.3
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• pp.255-268
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• 2017

This study examines whether firms with tax avoidance of Corporate Social Responsibility(CSR) performance is tempered by the extent firms engage in CEO turnovers. Considering the increasing interest in CSR activities of the firm to secure sustainable growth of national economy, this paper investigates the benefit and cost of CSR activities by combining the agency theory using the firm level data. Prior studies document that investors positively value tax avoidance. The rationale for this finding is that tax avoidance provides cash savings that can be used by firm managers to generate future shareholder wealth. Prior studies also show that investors' valuations are sensitive to the risk of future negative tax outcomes. Assuming that many types of CSR performances are low risk, low yielding uses of firm resources, we posit that higher levels of CSR performance may signal to investors that cash generated via tax avoidance has not been fully used to generate a return sufficient to offset the risk associated with aggressive tax planning strategies. Consistent with this argument, we predict and find that the positive association between CSR performance and tax avoidance is significantly weakened when firms have higher positive levels of CEO turnovers. Further, we predict and find that 'philanthropic' types of CSR activities in particular are associated with investor discounting of tax avoidance. We interpret our results as suggesting the equity market views CSR activities to be ostensibly funded through cash savings generated via tax avoidance.

• Management & Information Systems Review
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• v.29 no.1
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• pp.79-96
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• 2010

The purpose of this study is to investigate factors that affect corporate CEOs' tax avoidance, ultimately helping find how to fundamentally prevent the avoidance, establish a tax system that ensures tax payers' compliance and revise tax laws and regulations in a positive way. For the purpose, this researcher surveyed corporate CEOs with a questionnaire that contained many questions of various types, which was developed based on previous studies. Findings of the study can be summarized as follows. Main factors affecting tax avoidance were the application of tax provisions, the ability to understand tax laws and the expectation of tax avoidance. The more corporate CEOs' were influenced by the first and the third factors, the higher their propensity for tax avoidance was. On the contrast, corporate CEOs were lower in propensity for tax avoidance when they were more able to understand tax laws. Regarding the three factors' relative influences, tax avoidance was most affected by the expectation of tax avoidance, followed by the ability to understand tax laws and the application of tax provisions in order. Meanwhile, a multi-regression analysis using the sequential deletion technique showed that tax avoidance were affected by the application of tax provisions and the expectation of tax avoidance and that tax avoidance was most influenced by the application of tax provisions, followed by the expectation of tax avoidance. These findings indicate that the degree of corporate CEOs' tax avoidance may vary depending on social and environmental changes that their business face. Meanwhile, positive factors such as tax-bearing capacity and the procedure of tax calculation and negative factors such as management ethics and tax authorities' regulation are all thought to be not helping prevent tax avoidance.

• The Journal of the Korea Contents Association
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• v.20 no.3
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• pp.164-178
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• 2020

This study was intended to study how social responsibility of small businesses affected tax avoidance. Specifically, it was intended to verify how social responsibility is influenced by tax psychological factors and how it is related to tax avoidance by making it an economic liability factor, an ethical liability factors. For him, the empirical data were reviewed, the questionnaire was prepared, and the collected data was analyzed using SPSS ver. 22.0 and PROCESS MACRO ver. 3.4. The verification showed that corporate economic and ethical responsibilities affected tax avoidance and that legal responsibility did not affect tax evasion, and that tax psychological factors mediated some of the effects of social responsibility on tax avoidance. Judging from the above results, it is doubtful that the prevention of tax evasion would require tax incentives to offset the costs incurred by an enterprise's economic responsibilities, and to establish a strict tax code to prevent one or two tax evasions from spreading throughout the group. In this study, however, there are limitations that arise from differences between variables omitted from the research model and methods of measuring tax hedges. Therefore, further studies using a wider variety of variables are required in subsequent studies.

• The Journal of Small Business Innovation
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• v.19 no.3
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• pp.17-42
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• 2016

Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes: An interpretation of FASB Statement No. 109, requires firms to evaluate uncertain tax positions and disclose information on their liabilities for these positions, unrecognized tax benefits (UTBs). We analyze the FIN 48 disclosures for calendar-year-end Korean companies listed on NYSE and NASDAQ and examine the Korean firms' tax aggressiveness utilizing the UTBs. The results suggest that stock exchange and firm size do not play a role in the Korean firms' tax aggressiveness, contrary to the matched U.S. firms and that the Korean firm in the miscellaneous retail industry is more tax aggressive than the firms in the communications, depository institutions and business services. In addition, we find evidence that the Korean firms are less tax aggressive than the matched U.S. firms. We also examine the Korean firms' tax avoidance tendencies using other measures of avoidance, leading to mixed results. Finally, we examine the association between the UTBs and other measures of tax avoidance and find a significant and negative association between the UTBs and the long-run cash effective tax rate.

• Management & Information Systems Review
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• v.17
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• pp.45-65
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• 2005

The purpose of this study is to contribute to a fundamental prevention of tax avoidance behaviors by individual businesses. For the purpose, this researcher surveyed factors surveyed individual business managers' disposition(type) of tax avoidance to determine factors influencing the avoidance, and proposed direction for further studies. Several hypotheses suggested here were verified to find that factors such as tax system, tax psychology, tax knowledge, social culture and the expectation of tax avoidance had effects on individual businesses' disposition of such avoidance. The multiple regression analysis made here showed that such factors as tax psychology, tax system and the expectation of tax avoidance affected the disposition of such avoidance and that the disposition was most influenced by tax system, followed by the expectation of tax avoidance and tax psychology in order. In conclusion, factors that have positive relations with tax avoidance, or tax burden and tax administration and those that have negative relations, or tax ethics and sanction are not helpful to preventing the avoidance. This is not consistent with previous results. Now behaviors of tax avoidance by individual businesses are prevailing and becoming more serious. In this sense, objective measurement devices should be developed to make possible further scientific studies about such behaviors. For the development, support by appropriate policies is needed.

• Korean small business review
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• v.31 no.4
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• pp.67-93
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• 2009

The purpose of this paper is to explore the relations between financial constraints and dividend smoothing of innovative small and medium sized enterprises(SMEs) listed on Korea Securities Market and Kosdaq Market of Korea Exchange. The innovative SMEs is defined as the firms with high level of R&D intensity which is measured by (R&D investment/total sales) ratio, according to Chauvin and Hirschey (1993). The R&D investment plays an important role as the innovative driver that can increase the future growth opportunity and profitability of the firms. Therefore, the R&D investment have large, positive, and consistent influences on the market value of the firm. In this point of view, we expect that the innovative SMEs can adjust dividend payment faster than the noninnovative SMEs, on the ground of their future growth opportunity and profitability. And also, we expect that the financial unconstrained firms can adjust dividend payment faster than the financial constrained firms, on the ground of their financing ability of investment funds through the market accessibility. Aivazian et al.(2006) exert that the financial unconstrained firms with the high accessibility to capital market can adjust dividend payment faster than the financial constrained firms. We collect the sample firms among the total SMEs listed on Korea Securities Market and Kosdaq Market of Korea Exchange during the periods from January 1999 to December 2007 from the KIS Value Library database. The total number of firm-year observations of the total sample firms throughout the entire period is 5,544, the number of firm-year observations of the dividend firms is 2,919, and the number of firm-year observations of the non-dividend firms is 2,625. About 53%(or 2,919) of these total 5,544 observations involve firms that make a dividend payment. The dividend firms are divided into two groups according to the R&D intensity, such as the innovative SMEs with larger than median of R&D intensity and the noninnovative SMEs with smaller than median of R&D intensity. The number of firm-year observations of the innovative SMEs is 1,506, and the number of firm-year observations of the noninnovative SMEs is 1,413. Furthermore, the innovative SMEs are divided into two groups according to level of financial constraints, such as the financial unconstrained firms and the financial constrained firms. The number of firm-year observations of the former is 894, and the number of firm-year observations of the latter is 612. Although all available firm-year observations of the dividend firms are collected, deletions are made in the case of financial industries such as banks, securities company, insurance company, and other financial services company, because their capital structure and business style are widely different from the general manufacturing firms. The stock repurchase was involved in dividend payment because Grullon and Michaely (2002) examined the substitution hypothesis between dividends and stock repurchases. However, our data structure is an unbalanced panel data since there is no requirement that the firm-year observations data are all available for each firms during the entire periods from January 1999 to December 2007 from the KIS Value Library database. We firstly estimate the classic Lintner(1956) dividend adjustment model, where the decision to smooth dividend or to adopt a residual dividend policy depends on financial constraints measured by market accessibility. Lintner model indicates that firms maintain stable and long run target payout ratio, and that firms adjust partially the gap between current payout rato and target payout ratio each year. In the Lintner model, dependent variable is the current dividend per share(DPS_t), and independent variables are the past dividend per share(DPS_t-1) and the current earnings per share(EPS_t). We hypothesized that firms adjust partially the gap between the current dividend per share(DPS_t) and the target payout ratio(Ω) each year, when the past dividend per share(DPS_t-1) deviate from the target payout ratio(Ω). We secondly estimate the expansion model that extend the Lintner model by including the determinants suggested by the major theories of dividend, namely, residual dividend theory, dividend signaling theory, agency theory, catering theory, and transactions cost theory. In the expansion model, dependent variable is the current dividend per share(DPS_t), explanatory variables are the past dividend per share(DPS_t-1) and the current earnings per share(EPS_t), and control variables are the current capital expenditure ratio(CEA_t), the current leverage ratio(LEV_t), the current operating return on assets(ROA_t), the current business risk(RISK_t), the current trading volume turnover ratio(TURN_t), and the current dividend premium(DPREM_t). In these control variables, CEA_t, LEV_t, and ROA_t are the determinants suggested by the residual dividend theory and the agency theory, ROA_t and RISK_t are the determinants suggested by the dividend signaling theory, TURN_t is the determinant suggested by the transactions cost theory, and DPREM_t is the determinant suggested by the catering theory. Furthermore, we thirdly estimate the Lintner model and the expansion model by using the panel data of the financial unconstrained firms and the financial constrained firms, that are divided into two groups according to level of financial constraints. We expect that the financial unconstrained firms can adjust dividend payment faster than the financial constrained firms, because the former can finance more easily the investment funds through the market accessibility than the latter. We analyzed descriptive statistics such as mean, standard deviation, and median to delete the outliers from the panel data, conducted one way analysis of variance to check up the industry-specfic effects, and conducted difference test of firms characteristic variables between innovative SMEs and noninnovative SMEs as well as difference test of firms characteristic variables between financial unconstrained firms and financial constrained firms. We also conducted the correlation analysis and the variance inflation factors analysis to detect any multicollinearity among the independent variables. Both of the correlation coefficients and the variance inflation factors are roughly low to the extent that may be ignored the multicollinearity among the independent variables. Furthermore, we estimate both of the Lintner model and the expansion model using the panel regression analysis. We firstly test the time-specific effects and the firm-specific effects may be involved in our panel data through the Lagrange multiplier test that was proposed by Breusch and Pagan(1980), and secondly conduct Hausman test to prove that fixed effect model is fitter with our panel data than the random effect model. The main results of this study can be summarized as follows. The determinants suggested by the major theories of dividend, namely, residual dividend theory, dividend signaling theory, agency theory, catering theory, and transactions cost theory explain significantly the dividend policy of the innovative SMEs. Lintner model indicates that firms maintain stable and long run target payout ratio, and that firms adjust partially the gap between the current payout ratio and the target payout ratio each year. In the core variables of Lintner model, the past dividend per share has more effects to dividend smoothing than the current earnings per share. These results suggest that the innovative SMEs maintain stable and long run dividend policy which sustains the past dividend per share level without corporate special reasons. The main results show that dividend adjustment speed of the innovative SMEs is faster than that of the noninnovative SMEs. This means that the innovative SMEs with high level of R&D intensity can adjust dividend payment faster than the noninnovative SMEs, on the ground of their future growth opportunity and profitability. The other main results show that dividend adjustment speed of the financial unconstrained SMEs is faster than that of the financial constrained SMEs. This means that the financial unconstrained firms with high accessibility to capital market can adjust dividend payment faster than the financial constrained firms, on the ground of their financing ability of investment funds through the market accessibility. Futhermore, the other additional results show that dividend adjustment speed of the innovative SMEs classified by the Small and Medium Business Administration is faster than that of the unclassified SMEs. They are linked with various financial policies and services such as credit guaranteed service, policy fund for SMEs, venture investment fund, insurance program, and so on. In conclusion, the past dividend per share and the current earnings per share suggested by the Lintner model explain mainly dividend adjustment speed of the innovative SMEs, and also the financial constraints explain partially. Therefore, if managers can properly understand of the relations between financial constraints and dividend smoothing of innovative SMEs, they can maintain stable and long run dividend policy of the innovative SMEs through dividend smoothing. These are encouraging results for Korea government, that is, the Small and Medium Business Administration as it has implemented many policies to commit to the innovative SMEs. This paper may have a few limitations because it may be only early study about the relations between financial constraints and dividend smoothing of the innovative SMEs. Specifically, this paper may not adequately capture all of the subtle features of the innovative SMEs and the financial unconstrained SMEs. Therefore, we think that it is necessary to expand sample firms and control variables, and use more elaborate analysis methods in the future studies.