ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Study on the Impact of the Corporate Sustainability Management on the Earnings Quality, Tax Avoidance and the Firm Value

  • Lee Hae-Seong Department of Accounting, Graduate School, Dongguk University

Asian Tax Journal Vol. 16 No. 5 (2015), pp. 209-242

Abstract

This paper would examine whether a company, being active in Corporate Sustainability Management (hereafter 'CSM') which are an appropriate gaining of profit, a social sharing of that profit and a joint growth activities, is better than other companies in terms of the earnings quality thanks to the positive effect of financial performances. And, after regarding tax avoidance as an unethical notion, it would study whether the CSM company is less aggressive at tax avoidance and how the relationship between CSM and the stock market response to tax avoidance. The good CSM company is anticipated to show a good earnings quality because its goal is a maintaining of constant growth with it's competitiveness being elevated. As tax avoidance, recognized as an unethical behavior generally, can lower a firm value, that good CSM company will seem to be less aggressive at tax evasion, and the market is expected to evaluate that company positively. In this study, observed values of 383 good CSM companies are to be subjects of research among 1,116 firm-year observed values on the basis of financial data from 2010 to 2014 with non-financial companies' stock items from KOSPI 200 and KOSDAQ 100 as of the end of 2014, and we use Korea Standards Association's Sustainability Indices and Dow Jones Sustainability Indices as the measurements of the good CSM companies. As a result of analysis, the CSM company appeared to be higher in the earnings quality than other companies. so we can conclude that the company tend to emphasize on the quality of financial performances as the more active in the CSM. As a result of analyzing levels of tax avoidance of the CSM companies, But Dow Jones' CSM companies didn't show a statistical significance. Meanwhile, in the case of the Korea Standards Associations's CSM companies, they are passive at tax avoidance. And, investors appeared to evaluate the company selected as CSM company highly, so we can see a brisk CSM activity is appreciated positively in the market. However, it wasn't statistically significant that relationship between the level of tax avoidances and the corporate value, and we couldn't find out that there was a significance between the CSM company and the tax avoidance on the firm value. This analysis shows that the good CSM company tend to receive a good score from the market, because this company has a good quality of earnings and is less aggressive at the tax avoidance. Accordingly, it is important for this report to conclude that the CSM activity would be needed to raise the company's value and this analysis gives significant meanings to investors and tax authorities.

Keywords

  • Sustainability Management
  • CSR
  • Earnings Quality
  • Tax Avoidance

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