Abstract

In this study, we examine whether there is a difference in the relationship between the tax sheltering by management and firm value as the corporate governance structure varies. Among the manufacturing companies listed in the Korea Securities Exchange with fiscal year ending in December, annual statements of 1,154 corporations that publicly announce the details of corporate tax reconciliation by having the taxation standard exceeding zero for the period 2003－2007 are selected as the final sample for our empirical analysis. The accounting income is defined as income before income taxes and the taxable income is income of each business year. We define the tax sheltering as the Book－Tax Income differences or 'BTD－Permanent Differences' that cannot be explained by total accrual amount or discretionary accruals. Our empirical results are as following：First, as the largest shareholders' and specially related parties' equity ratios are higher, the tax sheltering value exhibits a statistically significant increase. Second, tax sheltering leads to an decrease in the firm value. Third, the negative effect of tax sheltering on firm value increases as the governance structure improves. This suggests that corporate governance structure must be secured first in order to attain the economic benefits arising from the tax sheltering by the management.

Keywords

• tax sheltering
• BTD(Book－Tax Difference)
• corporate governance
• firm value

Related Articles

• A Study on the Requirements of Value－upCompanies under the Estate Tax Act

  Chung－Jin Shim

  25(6) 75-100

  Abstract Full Text for PDF

• Voluntary Disclosure of Corporate Governance Report and Firm Value

  Yeo－Jin Kim , Ahn Sunghee

  21(2) 127-156

  Abstract Full Text for PDF

• A Study on Relationship of Corporate Governance with Accounting Quality and Firm Value, Taking Endogeneity into Consideration

  Rho, Joon Hwa

  18(3) 9-39

  Abstract Full Text for PDF

• Corporate Governance, Accounting Information, and Firm Value－A Comparative Study on Korea and U.S. Capital Markets－

  Joonwhan Oh

  10(4) 75-115

  Abstract Full Text for PDF

• A Study on Corporate Governance Quality and Shareholder Returns：Focusing on Compliance with Key Indicators in Corporate Governance Reports

  Kyung Suk Lee , HyeJeong Nam

  27(1) 131-171

  Abstract Full Text for PDF