The perception that corporate tax avoidance represents a shift of value from the government tax authority to shareholders has been questioned by recent studies that finds this perception to not be legitimate in the data. In this study, I point out the evidence of the positive relationship between tax avoidance and firm level investment so that to provide an evidence of the managers’ behavior of using savings from tax avoidance to fund firms’ investment activities. Furthermore, this study, examine the effect of earnings quality and internal resource on the relationship between tax avoidance and firm level investment.
I collected data of 3085 firms from the KisValue database with accounting data for companies listed on the Korea Stock Exchange (KOSPI) from 2012 to 2017, to test the effect of earnings quality and internal resource on the relationship between tax avoidance and firm level investment. I start with year 2012 because in 2012, International Financial Reporting Standards (IFRS) adoption becomes compulsory to all listed companies in Korea. In contrast from previous research, this study looks at the relationship of tax avoidance and firm level investment from a different perspective by focusing on the effect of earnings quality and internal resource on this relationship.
The evidence of this study suggests that tax avoidance is positively associated with firm level investment. In other words, when firms increase tax avoidance, the firm level investment also increases. Adding to Dobbins and Jacob (2016) and Axel and Joachim (2017) research that found lowered tax rates, induce higher investments. This study also finds the evidence that the relationship between tax avoidance and firm level investment depends on the availability of internal resource and the level of earnings quality. The relationship between tax avoidance and firm level investment is negative when the firm has greater internal resource and better earnings quality. These results suggesting that; firms with the presence of greater internal resource (i.e. internally generated cash flow) tend to rely less on tax avoidance to fund their investment than those firms with low internal resource. Similarly, firms with better earnings quality tend to rely less on tax avoidance to finance their investment than firms with poor earnings quality.
Inhaltsverzeichnis (Table of Contents)
- Chapter 1 Introduction
- Chapter 2 Literature Review
- 2.1. Tax Avoidance and Internal Resource
- 2.2. Internal Resource and Investment
- 2.3. Tax Avoidance and Investment
- 2.4. Tax Avoidance and Earnings Quality
- Chapter 3 Research Design
- 3.1. Hypothesis
- 3.1.1. Relationship between Tax Avoidance and Firm Level Investment
- 3.1.2. The Effect of Earnings Quality on the Relationship between Tax Avoidance and Firm Level Investment
- 3.1.3. The Effect of Internal Resource on the Relationship between Tax Avoidance and Firm Level Investment
- 3.2. Model Development
- 3.3. Variable Measurements
- 3.3.1. Dependent Variable
- 3.3.2. Interested Variable
- 3.3.3. Control Variable
- 3.3.4. Summary of Variables and their Measurements
- 3.4. Sample Selection
- 3.1. Hypothesis
- Chapter 4 Empirical Results
- 4.1. Descriptive Statistics
- 4.1.1. Dependent Variable
- 4.1.2. Interested Variable
- 4.1.3. Control Variable
- 4.2. Correlations
- 4.3. Regression
- 4.3.1. Relationship between Tax Avoidance and Firm Level Investment
- 4.3.2. The Effect of Earnings Quality on the Relationship between Tax Avoidance and Firm Level Investment
- 4.3.3. The Effect of Internal Resource on the Relationship between Tax Avoidance and Firm Level Investment
- 4.1. Descriptive Statistics
- Chapter 5 Conclusions
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This study explores the relationship between tax avoidance and firm level investment in South Korea. It investigates the impact of earnings quality and internal resource on this relationship, aiming to provide evidence for managers' use of tax avoidance savings to fund firm investment.
- The relationship between tax avoidance and firm-level investment.
- The effect of earnings quality on the relationship between tax avoidance and firm-level investment.
- The effect of internal resource on the relationship between tax avoidance and firm-level investment.
- The impact of International Financial Reporting Standards (IFRS) adoption on the relationship between tax avoidance and firm-level investment.
- The behavior of managers in utilizing tax avoidance savings for investment purposes.
Zusammenfassung der Kapitel (Chapter Summaries)
Chapter 1 Introduction outlines the study's background and context, highlighting the ongoing debate regarding the impact of corporate tax avoidance. It presents the study's objectives and research questions, emphasizing the focus on the relationship between tax avoidance and investment in South Korea.
Chapter 2 Literature Review provides a comprehensive review of existing research on tax avoidance, internal resource, and firm-level investment. This chapter examines prior findings related to the relationship between tax avoidance and investment, exploring the role of earnings quality and internal resource in this context.
Chapter 3 Research Design details the study's methodology, including hypothesis development, variable measurement, sample selection, and data collection. This chapter also clarifies the model used to test the research hypotheses and the specific data sources utilized.
Chapter 4 Empirical Results presents the results of data analysis, including descriptive statistics, correlation analysis, and regression analysis. This chapter examines the relationship between tax avoidance and investment, analyzing the effects of earnings quality and internal resource on this relationship.
Schlüsselwörter (Keywords)
The central keywords and focus topics of this research are corporate tax avoidance, firm-level investment, earnings quality, internal resource, International Financial Reporting Standards (IFRS), South Korea, and managerial behavior.
- Quote paper
- Cesilia Mgimwa (Author), 2019, The effect of Earnings Quality and Internal Resource on the relationship between Tax Avoidance and Firm level Investment, Munich, GRIN Verlag, https://www.grin.com/document/537765
