Does Tax Incentives Affect Future Firm Value for Corporate Sustainability?

Hyung-Jong Na, Hyeon Kang and Hyang-Eun Lee
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Hyung-Jong Na: Department of Accounting and Taxation, Semyung University, Jecheon 27136, Korea
Hyeon Kang: Department of Security Management, Kyunggi University, Seoul 03731, Korea
Hyang-Eun Lee: Department of Service and Design Engineering, Sungshin Women’s University, Seoul 01133, Korea

Sustainability, 2021, vol. 13, issue 22, 1-17

Abstract: This paper investigates how tax benefits for companies affect future firm value and current corporate performance. In addition, this paper also examines the relationship between tax benefits and future firm value for each major industry. The findings of this paper are as follows. First, tax benefits granted to companies improve current corporate performance. The effect of tax benefits that reduce corporate tax costs increases net income, which directly increases current corporate performance, such as ROA (returns on assets) and ROE (returns on equity). Second, tax benefits granted to firms reduce future firm value. Industries that receive tax benefits may have inherent taxation, which can lead to fiercer competition and ultimately lower pre-tax profit margins due to the entry of new companies or the increase in production facilities. In addition, tax benefits that cause temporary differences among the types of tax benefits for a company through deferred tax payments may be factors that hinder future improvements in corporate value. These causes result in the fact that tax benefits for a company can negatively affect its value in the long term. This paper has the following contributions. First, the findings of this paper imply that there is a limit to the positive impact of tax benefits on firms on improving corporate value in the long run. Second, through empirical analysis, this study provides objective information that the impact of tax incentives on corporate value may differ by industry.

Keywords: tax benefits; current corporate performance; future firm value; sustainability; inherent taxation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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