The impact of small and medium-sized enterprises(SMEs) ESG management and business strategies on tax avoidance

As companies implement ESG management for continuous growth and survival, there is a trend of emphasizing ESG management even among small and medium-sized enterprises(SMEs). Additionally, SMEs, which hold a significant share of the domestic economy, need to establish reasonable management strategies to maintain competitiveness and grow. In the case of SMEs, they receive various policy supports and tax benefits, resulting in a relatively low level of tax burden. This study focuses on analyzing SMEs with these characteristics, empirically examining the impact of ESG management and business strategies on tax avoidance. It also analyzes how the choice of business strategy by managers in SMEs practicing ESG management affects tax avoidance. Specifically, the study analyzes SMEs with a December fiscal year-end, listed on the securities and KOSDAQ markets from 2015 to 2023. It examines the impact of ESG ratings provided by the Korea ESG Standards Institute and the prospector, analyzer, and defender business strategies of Miles and Snow(1978, 2003) on tax avoidance. Examining the empirical analysis results of this study, firstly, it is found that the better the ESG rating of SMEs, the more tax avoidance increases. Additionally, in terms of individual ratings, it is found that the more excellent the environmental activity rating of SMEs, the more tax avoidance increases. Secondly, it is found that the more SMEs implement a prospector strategy, pursuing innovation and risk-taking, the more they actively engage in tax avoidance to pioneer new products and markets. Thirdly, it is found that in groups of SMEs with high ESG ratings, the more they implement a prospector strategy, the more tax avoidance increases. The contributions of this study are as follows. Firstly, by analyzing the impact of ESG management and business strategies of SMEs on tax avoidance, it has expanded the field of tax avoidance research. Secondly, it examined whether the impact of business strategies on tax avoidance varies depending on the ESG rating of SMEs. Thirdly, it provided useful information for decision-making not only to tax authorities but also to investors and stakeholders.