Affiliations:
Department of Accounting and Taxation, Hanbat National University, Daejeon, South Korea
This study examines the effect of foreign ownership on corporate tax avoidance among firms listed on the Korean stock market and investigates whether this relationship is nonlinear and moderated by the adoption of International Financial Reporting Standards (IFRS) in 2011. As foreign investors have become more influential in Korea’s capital market, they play an important role in shaping firms’ tax behavior. While prior studies suggest that foreign ownership can reduce tax avoidance through stronger monitoring, this study also considers whether high levels of foreign ownership may support managerial interests or allow aggressive tax practices. Using panel data from KOSPI- and KOSDAQ-listed firms from 2001 to 2023, tax avoidance is measured by book-tax differences (BTD) and discretionary book-tax differences (DDBTD). The results reveal an inverted U-shaped relationship between foreign ownership and tax avoidance, indicating that tax avoidance increases at low levels of foreign ownership but decreases after reaching a certain threshold due to enhanced monitoring. This relationship remains after IFRS adoption, although the degree of nonlinearity becomes weaker in the post-IFRS period. These findings suggest that the influence of foreign ownership on corporate tax behavior depends on both the level of ownership and changes in the institutional environment, and they provide important implications for understanding the governance role of foreign investors in emerging markets.
Foreign ownership, Tax avoidance, Nonlinear relationship, IFRS adoption, Corporate governance
https://doi.org/10.21833/ijaas.2026.01.011
Kwon, G. J. (2026). Foreign investors as guardians or colluders? The moderating role of IFRS in corporate tax avoidance in Korea. International Journal of Advanced and Applied Sciences, 13(1), 101–114. https://doi.org/10.21833/ijaas.2026.01.011