Controlling Shareholders’ Value and Corporate Tax Avoidance

초록

Using a new measure on the concentration of controlling shareholders’ wealth within a business group (i.e., controlling shareholders’ value), this paper investigates whether and how controlling shareholders’ value affects corporate tax planning. Based on a sample of Korean business groups (chaebols) that are known to be subject to agency problems between controlling and minority shareholders, we find that firms with high controlling shareholders’ value engage in a lower level of tax avoidance than other affiliates in the business group. We also find that controlling shareholders’ concern about the costs of tax avoidance (i.e., regulatory penalties and reputational damages) are potential mechanisms through which prevent firms with high controlling shareholders’ value from aggressive tax planning. Lastly, we provide value-implication of tax avoidance for firms with high controlling shareholders’ value. Overall, our paper sheds new light on a commonly overlooked determinant of tax avoidance among firms affiliated with a business group.