Impact of Sustainable Tax Strategy Development on Investment Scale and Corporate Value: Evidence from Korea

This study examines the impact of corporate sustainable tax strategies on investment scale and firm value using signaling theory. Following McGuire et al., we measure tax strategy sustainability through the coefficient of variation of cash effective tax rates over a five-year period. Using 3,121 firm-year observations of Korean listed companies from 2010 to 2023, we employ Two-Stage Least Squares regression to address endogeneity concerns. Our findings support two main hypotheses. First, firms pursuing sustainable tax strategies engage in significantly larger capital investments, suggesting that consistent tax policies signal effective risk management capabilities and enable systematic long-term investment planning. Second, the interaction effect between sustainable tax strategies and capital expenditures positively influences firm value, indicating that sustainable tax planning enhances investment efficiency. The results demonstrate that firms with lower tax rate volatility send positive signals to external stakeholders about their predictable cash flows, superior internal control systems, and strategic management capabilities. This study contributes to the literature by applying signaling theory to tax strategy research and provides practical insights for corporate managers regarding the importance of long-term tax planning over short-term tax minimization. The findings also support UN Sustainable Development Goals 8, 9, and 12 by demonstrating how sustainable financial practices promote responsible corporate decision-making.