مدیریت سود با کنترل سهامداران برنامه ریزی کرده برای هدیه های سهام Earnings management by controlling shareholders who plan for stock gifts: Korean evidence

1. Introduction One of the salient features of the corporate governance of most Korean companies is that the controlling shareholders virtually manage the operations of their companies (Claessens, Djankov, and Lang 2000). Most of these controlling shareholders usually bequeath their ownership interests to the next generation through a stock gift in order to retain the governing power within their own families. However, the highest applicable estate and gift tax rate is 50% in Korea1 so that the cross-generational wealth transfers can only be consummated at a substantial tax cost. For an example, in 2007, Seung-Youn Kim of Hanwha Group gave 3 million shares of Hanwha Corp. as a gift to his three sons, reducing his ownership interest from 20.97 to 16.97%. This stock gift would have cost his children approximately $80 million in tax. For another example, the controlling shareholder of Shinsegae, the largest Korean department store chain, transferred his entire 7.82% stake to his children in 2006. And the family paid $452 million in gift tax, which is the largest amount of gift tax ever paid in Korea to date. Be that as it may, a more practical justification for estate and gift taxes can be found in the Korean context. Chaebols, the Korean gigantic business conglomerates governed by a few controlling shareholders and their family members, are pinpointed as one of the culprits of economic inequality in the nation. Social activists believe that inequality further deteriorates because of cross-generational transfers of economic power by Chaebols. They argue that an inexorable system of heavy estate and gift taxes is commendable and could be justified as a means to alleviate economic inequity in Korea. A similar voice is heard in other Asian countries. For example, Chinese officials expressed concerns on the severely unequal wealth distribution in the nation and the increasing disparity between the rich and poor. A 2014 report co-prepared by a leading Chinese bank and a research institute2 indicates that 17,000 of the richest people aggregately possess personal assets worth over 31 trillion RMB, which amounts to approximately half of the nation’s 2014 GDP. The report also states that most of these wealthy people manage their own companies and eagerly plan to transfer their businesses to their children. To counteract the effects of such economic inequality, the Chinese government prepared in 2010 a draft bill of estate and gift tax laws, which stipulated a maximum of 50% tax rate for a gift or a bequest worth over 10 million RMB.