The Effects of ESG Performance on the Relationship between Tax Risk and Cost of Capital: An Empirical Analysis of Korean Multinational Corporations

• 영문명: The Effects of ESG Performance on the Relationship between Tax Risk and Cost of Capital: An Empirical Analysis of Korean Multinational Corporations
• 발행기관: 한국무역학회
• 저자명: 강정연 김임현
• 간행물 정보: 『Journal of Korea Trade (JKT)』Vol.27 No.1, 1~18쪽, 전체 18쪽
• 주제분류: 경제경영 > 무역학
• 파일형태: PDF
• 발행일자: 2023.02.28

영문 초록

Purpose - Using a sample of Korean multinational corporations, we examine whether the relationship between tax risk and the implied cost of capital discriminates between the environmental, social, and corporate governance (ESG) of highly rated firms. Design/methodology - Firms with high tax risks have an increased uncertainty of future cash flows. Therefore, as the volatility of future cash flow increases, information asymmetry and the required return increases. Highly rated ESG firms can reduce information asymmetry, thereby weakening the positive relationship between tax risk and cost of capital. We employ the standard deviation of the cash effective tax rate as proxy of tax risk. We utilize the ESG rating data of the Korea Corporate Governance Service (KCGS). We use a PEG model, MPEG model, and GM model to measure the implied cost of capital. Findings - We find a positive association between the implied cost of capital and tax risk. The positive relationship between tax risk and the implied cost of capital weakens in highly rated ESG firms. Highly rated ESG firms prefer a stable tax position to invest after-tax cash flows into sustainable management. Therefore, the negative effects of tax risk on cost of capital can be reduced. Originality/value - This study provides empirical evidence that ESG activities can mitigate the negative impact of tax risk on the cost of capital for Korean multinational corporations. In a business environment where ESG activities are more important, the empirical results that ESG activities can reduce the corporate risk of Korean FDI companies are expected to provide implications for the ESG activities of multinational corporations.

목차

1. Introduction

2. Literature Review and Hypothesis Development

3. Research Design

4. Results

5. Conclusions

References

키워드

Cost of Capital CSR ESG FDI Multinational Corporation Tax Risk