The moderating effect of donation expenditure in the value relevance of tax avoidance: Evidence from Korean stock market

Gee-Jung Kwon; Gee-Jung Kwon

doi:10.3934/NAR.2025018

National Accounting Review

2025, Volume 7, Issue 3: 428-456. doi: 10.3934/NAR.2025018

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Research article

The moderating effect of donation expenditure in the value relevance of tax avoidance: Evidence from Korean stock market

Gee-Jung Kwon ^,

Department of Accounting and Taxation, Hanbat National University, Daejeon, Republic of Korea

Received: 13 February 2025 Revised: 31 July 2025 Accepted: 02 September 2025 Published: 08 September 2025
JEL Codes: M40, M41, H24

This study investigated how donation expenditures—as a proxy for corporate social responsibility (CSR) activities—moderate the relationship between tax avoidance and corporate value among companies listed on the Korean stock market from 2000 to 2021. Unlike previous studies that relied on third-party CSR evaluations, this research utilizes the actual donation amounts disclosed in financial statements to measure CSR engagement, thereby enhancing the objectivity and relevance of the analysis in the Korean context, where donation-related corporate tax deductions are capped by law. The empirical analysis modified Ohlson's (1995) corporate valuation model, employing the discretionary difference between book and taxable income (DDBTD) as the principal indicator of tax avoidance. Control variables included donations, the largest shareholder's equity ratio, sales growth rate, and firm age. By estimating interaction effects through hierarchical regression and robustness checks with alternative donation measures, this study addressed both endogeneity and scale effects. The results indicate that donation expenditures have a significant positive moderating effect on the relationship between tax avoidance and corporate value. Notably, this moderating impact was statistically significant only among firms in the highest quartile of donation intensity, suggesting that the value relevance of tax avoidance increases above a certain donation threshold. This finding remains robust across different measurement approaches and subsample analyses. This research contributes new evidence showing that, within the unique regulatory and disclosure environment of Korea, firms may leverage donations both as a CSR strategy and as part of tax planning. It clarifies that donations strengthen the positive association between tax avoidance and firm value, principally when donation activities are large enough to be salient. These results highlight the importance of considering both regulatory context and the scale of social contribution in assessing the value implications of tax avoidance strategies in capital markets.
- donation,
- tax avoidance,
- value relevance,
- moderating effect,
- Korean stock market
Citation: Gee-Jung Kwon. The moderating effect of donation expenditure in the value relevance of tax avoidance: Evidence from Korean stock market[J]. National Accounting Review, 2025, 7(3): 428-456. doi: 10.3934/NAR.2025018

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Abstract

This study investigated how donation expenditures—as a proxy for corporate social responsibility (CSR) activities—moderate the relationship between tax avoidance and corporate value among companies listed on the Korean stock market from 2000 to 2021. Unlike previous studies that relied on third-party CSR evaluations, this research utilizes the actual donation amounts disclosed in financial statements to measure CSR engagement, thereby enhancing the objectivity and relevance of the analysis in the Korean context, where donation-related corporate tax deductions are capped by law. The empirical analysis modified Ohlson's (1995) corporate valuation model, employing the discretionary difference between book and taxable income (DDBTD) as the principal indicator of tax avoidance. Control variables included donations, the largest shareholder's equity ratio, sales growth rate, and firm age. By estimating interaction effects through hierarchical regression and robustness checks with alternative donation measures, this study addressed both endogeneity and scale effects. The results indicate that donation expenditures have a significant positive moderating effect on the relationship between tax avoidance and corporate value. Notably, this moderating impact was statistically significant only among firms in the highest quartile of donation intensity, suggesting that the value relevance of tax avoidance increases above a certain donation threshold. This finding remains robust across different measurement approaches and subsample analyses. This research contributes new evidence showing that, within the unique regulatory and disclosure environment of Korea, firms may leverage donations both as a CSR strategy and as part of tax planning. It clarifies that donations strengthen the positive association between tax avoidance and firm value, principally when donation activities are large enough to be salient. These results highlight the importance of considering both regulatory context and the scale of social contribution in assessing the value implications of tax avoidance strategies in capital markets.

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