ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Labor Union and Tax Avoidance －Evidence from Korea－

  • Shin Sang Yi School of Business Administration, Chungbuk National University

Asian Tax Journal Vol. 17 No. 2 (2016), pp. 9-34

Abstract

This paper examines the association between labor union's influence and corporate tax avoidance focusing on Korean empirical evidence. Prior management literatures suggest that existence of labor union is mixed result with the firm value. So accounting and finance papers try to examine the economic consequences of labor union’s influence. Also accounting literatures suggest that labor union have a negatively associated with corporate earnings management by playing a monitoring role in a good corporate governance role(Choi and Bae 2011). However there is limited research has been done regarding the labor union's influence and the corporate tax avoidance in Korean empirical evidence. Using Korean 1,900 firm－year observations between 2000 to 2008, labor union’s influence is positively(＋) associated with the corporate tax avoidance. This empirical analysis shows that existence of labor union can make manager do use corporate tax avoidance which could reduce real cash outflows and the firm’s unionization rate is also positively associated with corporate tax avoidance. This result implies that labor union is interested in after－tax cash flows because labor union just seeks to maximize wages for their short term perspective. Also this empirical results show that labor union do not play an active monitoring role regarding manager’s opportunistic tax avoidance for their long term perspective. This study makes several contribution toward accounting and tax literatures. First, U.S. studies shows that labor union has monitoring role toward corporate tax avoidance, however Korean labor union boost up corporate tax avoidance which can enable wage maximization. So regarding this topic, U.S. and Korea has different empirical result then this can show us labor union’s behavior toward corporate tax avoidance can be differ from each other. So this empirical result may shed some light on accounting and tax literatures.

Keywords

  • Labor Union’s Influence
  • Wage Maximization
  • Corporate Tax Avoidance

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