ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effect of Managerial Ability on Tax Risk

  • Seung Jae Lee Korea University

Asian Tax Journal Vol. 23 No. 2 (2022), pp. 61-96

Abstract

This study analyzed how managerial ability affects tax risk, conducting an empirical analysis on whether tax risk is reduced when managerial ability is high. Using non－financial public firms between 2004 and 2020, we have performed regression analysis. The main empirical results are as follows. Firstly, it revealed that when the managerial ability is high, there is significant negative effect on tax risk. In other words, capable manager is less likely to involve with tax avoidance and more likely to reduce firm’s business risk. Secondly, the effect of managerial ability on tax risk is more pronounced when the firm is audited by Big4 auditor. This empirical result implies that Big4 auditor’s expertise and independence reinforced the managerial ability on tax risk and lowered uncertainty in future tax burden. Lastly, the effect of managerial ability on tax risk is more salient when the firm has large foreign ownership. This result suggests that the capital market requires strong accounting transparency for firms with large foreign ownership. Overall, this study analyzed the impact of managerial ability on tax risk and further analyzed whether this effect is pronounced when the firm is audited by Big4 auditor or owned by large foreign investor.

Keywords

  • Managerial Ability
  • Tax Risk
  • Tax Aggressiveness

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Asian Tax Journal

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