Relationship Between Tax Avoidance and Key Financial Indicators in Koreas Construction Waste Disposal Industry

Weon Jae Kim, Geun Bae Jang

Abstract

This study the first of its kind in the chosen context examined whether a relationship exists between tax avoidance and key financial indicators in the construction waste disposal industry in Korea. The indicators of interest were cash flows from operations, the ratio of noncurrent assets to noncurrent financing (shareholder equity and noncurrent liabilities), and debt dependency level. The model used for the analysis was Desai & Dharmapala’s tax avoidance proxy model. Results showed that cash flows from operations and the ratio of noncurrent assets to noncurrent financing are significantly positively related to tax avoidance. By contrast, debt dependency level exhibits no significant relationship with the aforementioned practice. On these bases, we can infer that the Korean construction waste disposal industry responds differently to key financial indicators with regard to tax avoidance. Overall, companies in the industry implement tax avoidance strategies on the basis of their ability to generate operating cash and noncurrent assets-to-noncurrent financing ratio rather than debt dependency. These findings provide important insights for people who are interested in tax information on the construction waste disposal industry in Korea.