The role of financial affiliates in tax avoidance by business groups: Evidence from Korea
- Title
- The role of financial affiliates in tax avoidance by business groups: Evidence from Korea
- Author
- 심해린
- Keywords
- business group; effective tax rates; financial institution; regulation; tax avoidance
- Issue Date
- 2023-11
- Publisher
- Blackwell Publishing Inc.
- Citation
- Journal of International Financial Management and Accounting, Page. 1.0-37.0
- Abstract
- This study examines whether financial affiliates within a nonfinancial business group perform certain roles and functions in tax avoidance by other nonfinancial affiliates or the group as a whole. Financial institutions have tax-planning expertise and knowledge and thus may assist other affiliates of the same group in avoiding taxes. In addition, regulatory loopholes leave scope for tax avoidance involving financial affiliates. Using 10,659 firm-year observations from 866 nonfinancial listed firms affiliated with business groups in Korea over the period 2001-2019, I find that firms belonging to nonfinancial groups with financial affiliates exhibit higher levels of tax avoidance than those belonging to nonfinancial groups without financial affiliates. The same result is observed at the group-level tax avoidance as well as the firm-level tax avoidance. In addition, I provide evidence that KFTC-designated business groups subject to tighter regulation engage more in tax avoidance by utilizing financial affiliates in the blind spots of regulation and oversight, and that related-party transactions (i.e., intragroup transactions) are used as avenues for financial affiliates to help other affiliates in tax avoidance. This study is one of the first empirical studies to shed light on the role of financial affiliates of nonfinancial groups in tax planning.
- URI
- https://onlinelibrary.wiley.com/doi/10.1111/jifm.12196https://repository.hanyang.ac.kr/handle/20.500.11754/187577
- ISSN
- 0954-1314;1467-646X
- DOI
- 10.1111/jifm.12196
- Appears in Collections:
- COLLEGE OF BUSINESS AND ECONOMICS[E](경상대학) > ACCOUNTING AND TAX(회계세무학과) > Articles
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