TY - JOUR
T1 - The impact of labor unions on corporate tax avoidance
T2 - Evidence from Korea
AU - Shin, Ilhang
AU - Park, Sorah
N1 - Publisher Copyright:
© 2020 LLC CPC Business Perspectives. All rights reserved.
PY - 2020/5/15
Y1 - 2020/5/15
N2 - This study examines the effect of labor unions on corporate tax avoidance activities. Labor union is an important stakeholder in terms of corporate governance; thus, managers may engage in certain accounting choices that reflect union members' position to improve the relation with labor union. This paper empirically investigates whether managers engage in tax avoidance activities to secure financial resources for workers' pay when the negotiation power of labor unions is higher. The empirical analysis is based on a sample of firms listed in the Korean stock market from 2001 to 2008. The authors find that companies, where labor unions are organized, have a significantly higher level of tax avoidance activities. Also, the authors attempt to examine the effect of labor unions' bargaining power on tax avoidance. While the union membership ratio is not significantly related to tax avoidance, labor unions that belong to upper-level labor organizations significantly affect the increasing tax avoidance activity, on average. Moreover, companies that join an aggressive labor organization ('Minju' Federation) show a significantly higher level of tax avoidance activity, compared to those joining a moderate labor organization ('Hanguk' Federation). Furthermore, the authors show that such an effect of labor unions on tax avoidance is significant for companies, which are not affiliated with large business groups ('chaebols'). This result suggests that chaebol group management is not under pressure to negotiate with union members due to higher reputation costs. The findings of this paper offer academic and practical implications that capital market participants need to understand labor unions' effect on management's accounting choices.
AB - This study examines the effect of labor unions on corporate tax avoidance activities. Labor union is an important stakeholder in terms of corporate governance; thus, managers may engage in certain accounting choices that reflect union members' position to improve the relation with labor union. This paper empirically investigates whether managers engage in tax avoidance activities to secure financial resources for workers' pay when the negotiation power of labor unions is higher. The empirical analysis is based on a sample of firms listed in the Korean stock market from 2001 to 2008. The authors find that companies, where labor unions are organized, have a significantly higher level of tax avoidance activities. Also, the authors attempt to examine the effect of labor unions' bargaining power on tax avoidance. While the union membership ratio is not significantly related to tax avoidance, labor unions that belong to upper-level labor organizations significantly affect the increasing tax avoidance activity, on average. Moreover, companies that join an aggressive labor organization ('Minju' Federation) show a significantly higher level of tax avoidance activity, compared to those joining a moderate labor organization ('Hanguk' Federation). Furthermore, the authors show that such an effect of labor unions on tax avoidance is significant for companies, which are not affiliated with large business groups ('chaebols'). This result suggests that chaebol group management is not under pressure to negotiate with union members due to higher reputation costs. The findings of this paper offer academic and practical implications that capital market participants need to understand labor unions' effect on management's accounting choices.
KW - Accounting choice
KW - Chaebols
KW - Corporate governance
KW - Labor union
KW - Tax avoidance
UR - http://www.scopus.com/inward/record.url?scp=85087058039&partnerID=8YFLogxK
U2 - 10.21511/ppm.18(2).2020.11
DO - 10.21511/ppm.18(2).2020.11
M3 - Review article
AN - SCOPUS:85087058039
SN - 1727-7051
VL - 18
SP - 114
EP - 127
JO - Problems and Perspectives in Management
JF - Problems and Perspectives in Management
IS - 2
ER -