A Study on the Tax Avoidance Behavior and the Value of Family and Non-Family Firms: Focused on KOSDAQ Firms

Purpose The purpose of this paper is to examine tax avoidance and its effect on corporate value in a corporate governance framework: First, this paper has analyzed whether there exist different tax avoidance tendencies between family firms and non-family firms registered on the KOSDAQ market. Second, this paper has examined the effect of tax avoidance on corporate value and whether the extent of its impact differs between family and non-family firms. Design/Methodology/Approach Based on the current literature, this paper measures tax avoidance by a portion of the difference between financial reporting income and taxable income after adjusting the amount resulting from the profit adjusting activities for financial reporting purposes. To classify family and non-family firms, this study adopts the criteria widely used in previous studies. Two criteria are applied to classify family firms for the consistency of the study. To verify hypotheses, we perform the panel data analysis for reliable in-depth results. Findings This paper studies that family firms have lower tax avoidance tendencies than non-family firms. This result suggests that family firms do not actively participate in tax avoidance compared to non-family firms because the non-financial costs of tax avoidance are assumed to be larger for family firms than for non-family firms. According to our panel analyses, the negative impact of tax avoidance on the value of family firms is greater than that of non-family firms. This indicates that investors in capital markets recognize that the costs of tax avoidance exceed its benefits and the extent to which the costs outweigh the benefits is greater for family firms than for non-family firms. Research Implications In the management of tax strategies, by studying the relationship between tax avoidance and corporate value, we can understand the decision-making process related to tax avoidance based on the trade-off between the costs of tax avoidance and its benefits from the perspective of family vs. non-family businesses. This is our contribution to the current literature.