Abstract

This study empirically verified how the issuance of Redeemable Convertible Preference Shares (referred to as “RCPS” hereafter), which has been actively used as a means of raising capital, is related to the tax avoidance and firm value after the issuance of various class stocks became possible due to the revision of the Commercial Act in 2011. RCPS is similar to liabilities, an alternative financing instrument, but it is a means of raising capital that does not pay interest expenses and can improve financial structure by being classified as equity if certain requirements are met. Therefore, it is highly likely that companies that have relatively low incentives to reduce tax will issue RCPS, so it is expected that RCPS issuing companies will not be active in tax avoidance. In addition, since RCPS includes both redemption rights and conversion rights, it is a good financing tool to attract investors. If such RCPS issuance is delivered as a positive signal to investors, it is expected to have a positive effect on corporate value, but there is also a possibility that it will negatively affect corporate value as it is transmitted as a negative signal to investors. This study analyzed the level of tax avoidance and firm value of RCPS issuers targeting non－financial listed companies from 2011 to 2018, and the analysis results are as follows. First, the level of tax avoidance of companies that issued RCPS was significantly lower than that of non－issuing companies. In other words, it is shown that companies that raised funds by choosing RCPS instead of debt, which is an alternative tax reduction method that has the effect of reducing taxes due to interest expenses, are not active in tax avoidance. Second, the firm value of RCPS issuing companies was significantly higher than that of non－issuers. It is interpreted that the issuance of RCPS implies financing for investment proposals that are sufficiently valuable to investors, and transmits as a positive signal to investors, thereby increasing firm value. Unlike previous studies, this study is significant in that it broadens the scope of understanding of preferred stocks through analysis of a specific class stock called RCPS. In addition, the results of this study on the relationship between the issuance of RCPS and tax avoidance and firm value are expected to provide useful information to various stakeholders, including investors and competent supervisory authorities.

Keywords

• Preferred Stock
• Class Stock
• Redeemable Convertible Preferred Stock
• Tax Avoidance
• Firm Value

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