This study aims to examine the relationship between corporate tax avoidance and intellectual capital (IC) to assess the role of tax strategies in the development of IC. Using financial flexibility and agency theories, it explores conflicting perspectives that consider tax avoidance as either an internal financing mechanism for IC or a managerial risk that undermines it. It also investigates how this relationship varies according to financial constraints and ownership structures.
A panel dataset of firms listed on the Korean Stock Exchange from 2013 to 2023 was used. IC was measured using the calculated intangible value method, and a random-effects Tobit model was employed to address data censoring. Current and lagged tax avoidance variables were included to capture temporal dynamics. Subgroup analyses were conducted by classifying firms according to the Whited-Wu index for financial constraints and level of ownership concentration.
Tax avoidance is negatively associated with IC in the short term but positively associated in the long term, suggesting its dual role as a short-term risk and a long-term financing mechanism. The negative effect is significant only among firms with high financial constraints or diffused ownership, indicating that financial capacity and governance are crucial in mitigating managerial risks.
Since the findings are based on South Korean firms, their generalizability to other institutional settings may be limited. Furthermore, the calculated intangible value-based measure may not have captured the qualitative aspects of IC.
The findings underscore the need for policies and regulatory frameworks that promote transparent tax practices, such as research and development tax credits and voluntary disclosure incentives, to ensure that tax savings are effectively allocated to IC development.
This study offers new insights into how tax strategies can support IC development, highlighting the conditional role of firm-specific characteristics in shaping tax savings allocation and for aligning tax planning with long-term value creation and sustainable competitive advantage.
