Controlling shareholders' tax incentives and related party transactions

Chung, Haejun; Choi, Seungwoo; Jung, Woon-Oh

doi:10.1016/j.pacfin.2019.101181

Cited by 9 publications

(6 citation statements)

References 36 publications

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“…To mitigate the concern that observable characteristics of the beneficiary and nonbeneficiary firms affect our results, we employ PSM (Lawrence et al 2011) and entropy balancing (Hainmueller 2012). For PSM, we follow Chung et al (2019) and estimate the likelihood of a firm being a beneficiary firm 25 . We match observations on propensity score using a caliper distance of 0.05, without replacement, which results in the matched sample of 202 treatment and 202 control firms 26…”

Section: Resultsmentioning

confidence: 99%

“…For example, M. Lee et al (2015) identify firms suspected to have avoided the gift tax and describe their specific strategies, such as merging seller and buyer firms and adding intermediary firms in the chain of trades. S. Lee et al (2015) and Chung et al (2019) report a reduction in related party sales in the post‐tax period. These studies provide evidence that firms change their operating activities in several ways to avoid the gift tax and that firms likely employ multiple strategies simultaneously 9 .…”

Section: Related Literature Institutional Background and Hypothesesmentioning

confidence: 99%

“…25 25Following Jian and Wong (2010) and Chung et al (2019), we use the following model: BF it = δ 0 + δ 1 TA it + δ 2 DEBT it + δ 3 GROWTH it + δ 4 PROS it + δ 5 LISTED it + δ 6 AGE it + δ 7 CSH it + δ 8 TOP10 it + Year and industry fixed effects + ε i . DEBT it is the ratio of total debts to total assets; PROS it is the return on sales of year t −1; AGE it is the natural logarithm of firm age; CSH it is the controlling shareholder ownership; TOP10 it is an indicator variable that equals one if the firm is one of the largest 10 business groups, and zero otherwise; and all other variables are as previously defined.…”

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confidence: 99%

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Controlling Shareholders' Tax Incentives and Classification Shifting*

Chung

Choi

Jung

2021

Contemporary Accting Res

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Although prior studies provide evidence on the financial reporting incentives to inflate core earnings through classification shifting (e.g., shifting core expenses to income‐decreasing noncore items), few examine the tax‐related incentive to report lower core earnings through classification shifting. We examine the effect of controlling shareholders' tax incentives on firms' classification shifting using the introduction of a tax law in Korea that imposes a gift tax on controlling shareholders based on firms' reported core earnings. This tax law creates incentives for managers to report lower core earnings through classification shifting, even though doing so would incur significant financial reporting costs. Using a difference‐in‐differences research design, we find that firms with controlling shareholders subject to the gift tax exhibit a significant decline in classification shifting in the post‐tax period, while those not subject to the tax do not. We also predict and find that the extent to which managers reduce classification shifting decreases with financial reporting costs and increases with the tax benefits. Overall, our results indicate that firms forgo financial reporting benefits associated with reporting higher core earnings for the tax savings of their controlling shareholders.

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Section: Resultsmentioning

confidence: 99%

Section: Related Literature Institutional Background and Hypothesesmentioning

confidence: 99%

mentioning

confidence: 99%

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Controlling Shareholders' Tax Incentives and Classification Shifting*

Chung

Choi

Jung

2021

Contemporary Accting Res

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“…Regulatory bodies have made stringent laws for the reduction of RPTs, and some countries such as South Korea have been successful in reducing related party sales through a separate gift tax imposed on the controlling shareholders on the excessive profits generated from abnormal related party sales (Chung et al, 2019). Standards on the disclosure of RPTs are now being harmonised in ASEAN countries to ensure there is protection of minority shareholders' interests (Razak et al, 2021).…”

Section: Related Party Transactionsmentioning

confidence: 99%

Financial Distress Assessment Using Related Party Transactions

Mahtani¹

2022

Indian Journal of Corporate Governance

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In the past few years, several companies in India have filed for bankruptcy, after facing financial distress. Investigations showed that many of these companies, which were from the infrastructure sector, had high values of related party transactions (RPTs) before and during the financial crisis. In this study, RPTs towards sales, loans or payments are analysed for these companies to assess if they have a pattern that can be an indicator of ensuing financial distress. The article develops a model for assessing financial distress with a combination of RPTs and accounting variables. The sample uses financial data from 2010 to 2016 of 18 companies facing financial distress and combines with 15 financially stable companies from the same sector. The study shows that combining RPTs and accounting variables in a model provides higher accuracy in assessing financial distress when compared to a model with accounting variables only. The study recommends that such transactions by financially unstable companies should be monitored closely by lenders and investors, to ensure there is no diversion of funds during the distress period. There are few studies in India or globally on the pattern of RPTs made by financially distressed companies.

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“…Hasil penelitian ini relevan dengan penelitian sebelumnya (Chung, Choi, & Jung, 2019;Habib, Muhammadi, & Jiang, 2017;Hwang & Kim, 2016). Mereka mengungkapkan kepemilikan institusional tidak terlibat signfikan dalam penjualan kepada pihak berelasi.…”

Section: Pengaruhunclassified

Komisaris Independen dalam Memoderasi Kepemilikan Institusional Terhadap Penjualan Pihak Berelasi

M.J

Umar

Suemdra

2022

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This study aims to examine the role of independent commissioners in moderating the effect of institutional ownership on sales to related parties. This research is a sample study, which includes 207 companies from 510 manufacturing sector companies during the 2017-2019 observation year. The sample was selected with certain criteria techniques. The analytical method used is moderated regression analysis. The results of the study found that institutional ownership had no significant effect on sales to related parties. The independent commissioner moderated the homologizer moderated the influence of institutional ownership on sales to related parties.

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Controlling shareholders' tax incentives and related party transactions

Cited by 9 publications

References 36 publications

Controlling Shareholders' Tax Incentives and Classification Shifting*

Controlling Shareholders' Tax Incentives and Classification Shifting*

Financial Distress Assessment Using Related Party Transactions

Komisaris Independen dalam Memoderasi Kepemilikan Institusional Terhadap Penjualan Pihak Berelasi

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