ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Earnings Quality and Tax Avoidance of Companies Using Shadow Voting

  • Lee Hae-Seong Korea Securities Depository

Asian Tax Journal Vol. 18 No. 4 (2017), pp. 111-145

Abstract

This paper examined transparency of companies using Shadow Voting through analyzing association between earnings quality, tax avoidance propensity. Research samples are companies with a December fiscal year end, listed on KRX, except for financial institutions, from 2011 to 2014. It analyzes the differences between earnings quality and tax avoidance propensity according to using SV after classifying companies into whether they use SV or not. And, it also analyzes the number of using that system in order to find if the more company use SV, the clearer transparency of the company is. For examining earnings quality, it proceeds with measuring quality of accruals through discretionary accruals, analyzing possibility of diverting from accruals to cash, and investigating persistency of earnings through an explanatory power of this term’s earnings toward next year’s one. In the analysis of tax avoidance propensity, this paper proceeds research with three methods of measuring levels of tax avoidance. one is a method using effective tax rate, like GAAP ETR, Cash ETR, the other is a method(Desai and Dharmapala 2006) using residual of regression analysis of between BTD and total accruals. In the analysis of earnings quality, the companies using SV appear to be lower than companies not using it. And we can conclude that the more companies use SV, the lower, generally, the earnings quality is. Meanwhile, looking into the result of analysis related to tax avoidance propensity of companies using SV, though the results show some differences by each methods of measuring of levels of tax avoidance, we can see that the more companies use SV, the more aggressive about tax avoidance they are. So, this research result is thought to have great implications for policy makers or stakeholders in the capital market amid controversy about whether abrogating SV or not.

Keywords

  • Shadow Voting
  • transparency of companies
  • earnings quality
  • tax avoidance

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