The role of financial affiliates in tax avoidance by business groups: Evidence from Korea

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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.

Corporate risk disclosures in turbulent times: An international analysis in the global financial crisis

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Abstract

Focusing on the global financial crisis period, this paper examines risk disclosure patterns and outcomes in a cross-country setting. We build on prior risk disclosure literature and draw upon institutional and agency-based theoretical lenses to investigate the nature, comprehensiveness, evolution, and quality of disclosed risk information for matched samples of manufacturing firms in the United States, Canada, Germany, and China (Chinese Hong Kong-listed firms). The results show a high degree of heterogeneity in risk disclosure behavior and volume among the sample firms attributed to both institutional differences and corporate reporting incentives in the study period. Furthermore, we document significant associations between risk proxies, risk disclosures, and firm market performance suggesting that corporate risk disclosures are potentially informative and useful to investors and other stakeholders. The paper highlights the important joint role of corporate incentives and legal institutions in interpreting and implementing accounting standards and stock exchange listing regulations around the world and during turbulent times.

How Context Matters in Non‐market Strategies: Exploring Variations in Corporate Social Responsibility‐Political Activity Relationships

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Abstract

Managing the nexus between societal and political demands represents an important challenge for today's organizations. While non-market strategy research debates the relationship between corporate social responsibility (CSR) and corporate political activity (CPA), it remains unclear how and why this relationship varies across different contexts. Based on a literature review, we address this question by developing a multi-contextual framework that allows us to organize existing literature and generalize beyond it. We contribute to non-market strategy research by conceptualizing a theoretically grounded set of single contexts covering different country and industry environments, transitional contexts considering the dynamic nature of non-market environments, and cross-context settings to conceptualize environments multinational and diversified domestic firms operate in, and associate those with different CSR-CPA relationships. We further contribute to broader non-market strategy research by shedding light on the varying meanings of CSR and CPA, exploring novel epistemological and methodological perspectives, and developing a future research agenda.

The Biological Basis of the Symbolic: Exploring the Implications of the Co‐Evolution of Language, Cognition and Sociality for Management Studies

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Abstract

In this essay, we approach the question of what it means for something to be symbolic in a different way from the usual answers rooted in philosophy, sociology or anthropology: we argue that the symbolic is, first and foremost, rooted in human biology and human evolution. We discuss how the development of the capability to create and share symbols was a key moment in human evolution that underpins our capability to communicate and store knowledge through language, to think abstractly about problems, and to live and work together effectively in large groups. It also underpins the unique ecological niche – the cognitive niche – that Homo sapiens construct using our capability to create and share symbols. We go on to explore some of the implications of an evolutionary understanding of the symbolic for management and organization research.

Labelling in financial reporting: An examination of “other comprehensive income” and non‐professional investors’ judgements

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Abstract

Other comprehensive income (OCI) is often confusing for financial statement users and the International Accounting Standards Board has proposed new labelling to improve its presentation. Using an experimental method, we find that OCI labelling influences non-professional investors' evaluation and judgements on financial performance. Non-professional investors place greater weight on OCI information presented with explicit labels when assessing both the current and future performance of a company. Our results indicate that improving the presentation of OCI information enhances their perceived relevance in investors' decision-making. The results have practical implications for standard setters and financial statement users.