How CEO Political Connections Induce Corporate Social Irresponsibility: An Empirical Study of Tax Avoidance in South Korea

Abstract

Building upon prior literature on the role of executives in tax payments, this study investigates the relationship between a CEO’s political connections and tax avoidance behavior as a typical type of social irresponsibility of a corporation. We propose that CEOs who are well connected to politicians through family, academic, and professional ties tend to adopt riskier strategic choices such as tax avoidance. We employ a multi-faceted method to quantify political connections in a more comprehensive and delicate way. Empirical results from 4,706 firm-year observations in South Korea between 2003 and 2014 provide support for our predictions. In addition, we test competing hypotheses on the moderating role of CEO tenure and find that such a tendency diminishes as the focal CEO stays in the position longer.