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The Effect of ESG Performance on Tax Avoidance—Evidence from Korea

Author

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  • Bohyun Yoon

    (Division of Economics and Information Statistics, Kangwon National University; Kangwon 24341, Korea)

  • Jeong-Hwan Lee

    (College of Economics and Finance, Hanyang University, Seoul 04763, Korea)

  • Jin-Hyung Cho

    (College of Economics and Finance, Hanyang University, Seoul 04763, Korea)

Abstract

We analyzed whether a firm’s engagement in socially responsible activities, as measured by environmental, social, and corporate governance (ESG) scores, influences their tendency to avoid tax in the Korean financial market. We found a negative relationship between Korean firms’ ESG scores and tax avoidance in terms of book-tax income difference during the sample period between 2011 and 2017. This result implies that firms with good CSR performance would tend not to manipulate taxable profits, which is in line with corporate culture theory. More interestingly, this trend has become more apparent for chaebol -affiliated firms, a special type of Korean conglomerate, than non- chaebol firms.

Suggested Citation

  • Bohyun Yoon & Jeong-Hwan Lee & Jin-Hyung Cho, 2021. "The Effect of ESG Performance on Tax Avoidance—Evidence from Korea," Sustainability, MDPI, vol. 13(12), pages 1-16, June.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:12:p:6729-:d:574705
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    References listed on IDEAS

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    Cited by:

    1. Tarsisius Renald Suganda & Jungmu Kim, 2023. "An Empirical Study on the Relationship between Corporate Social Responsibility and Default Risk: Evidence in Korea," Sustainability, MDPI, vol. 15(4), pages 1-20, February.
    2. Shuxia Zhang & Xiangyang Yin & Liping Xu & Ziyu Li & Deyue Kong, 2022. "Effect of Environmental, Social, and Governance Performance on Corporate Financialization: Evidence from China," Sustainability, MDPI, vol. 14(17), pages 1-20, August.
    3. Márkus, Martin, 2023. "A társadalmi felelősségi pontszámok és a működési kockázat kapcsolata kockázati kategóriák szerint [The relationship between the ESG score and operational risk in different risk categories]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 746-771.
    4. Silvia Bressan, 2023. "ESG, Taxes, and Profitability of Insurers," Sustainability, MDPI, vol. 15(18), pages 1-13, September.
    5. Jeong-Hwan Lee & Jin-Hyung Cho, 2021. "Firm-Value Effects of Carbon Emissions and Carbon Disclosures—Evidence from Korea," IJERPH, MDPI, vol. 18(22), pages 1-16, November.
    6. Giovanna Gavana & Pietro Gottardo & Anna Maria Moisello, 2022. "Related Party Transactions and Earnings Management: The Moderating Effect of ESG Performance," Sustainability, MDPI, vol. 14(10), pages 1-21, May.
    7. Lee, Gunhee & Bae, Mincheol & Sohn, Joongchan & Han, Chanwoo & Cho, Jinhyung, 2024. "Does voluntary environmental information disclosure prevent stock price crash risk? – Comparative analysis of chaebol and non-chaebol in Korea," Energy Economics, Elsevier, vol. 131(C).
    8. Kadarisman Hidayat & Diana Zuhroh, 2023. "The Impact of Environmental, Social and Governance, Sustainable Financial Performance, Ownership Structure, and Composition of Company Directors on Tax Avoidance: Evidence from Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 311-320, November.

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