ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effect of Corporate Culture on Corporate Tax Avoidance

  • Hyung Jong Na Sungkyunkwan University

Asian Tax Journal Vol. 19 No. 6 (2018), pp. 297-325

Abstract

The corporate culture, in which the management philosophy or behavior rules are comprehensively reflected, plays an important role in creating and sharing the corporate vision and value. Accordingly, the corporate culture is expected to influence the management decisions. Especially, this paper regards the corporate tax avoidance, which results in numerous considerable consequences, as one of the most important decisions made by managements, and investigate whether the corporate culture is related with the corporate tax avoidance. Corporate tax strategy not only brings the economic benefits by reducing tax payments, but also creates the future risk of unfavorable judgement on the tax planning made by the tax authorities. The possible unfavorable judgements may cause the non－tax cost from the loss of corporate reputation as well as the cancellation of the tax benefits. Therefore, we expect that the corporate culture, which provides the comprehensive guidelines to the entire business decision, would also influence the managerial decision on whether they take the potential risk of detecting the aggressive tax planning or not. This paper classify the corporate culture into four types based on the Human Capital Corporate Panel data. With 506 firm－year observations of which the type of corporate culture is identifiable, we find that the firms with innovative and creative culture and the firms with competitive and expert culture are more likely to be engaged in the tax avoidance. These findings suggest that firms with such types of corporate culture are less likely to avoid the potential risk of being detected the aggressive tax planning by the tax authorities and would willingly implement in the aggressive tax strategy. This study suggests that the corporate culture that includes the organization as a whole, as well as individual characteristics of the corporation, is also related to the tax avoidance decision of the corporation, thereby contributing to broadening the research horizon on the research for the determinants of tax avoidance.

Keywords

  • Corporate culture
  • Tax avoidance

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