The Impact of Tax Planning and ESG on Cash Holdings

Abstract

This study aims to investigate the impact of effective tax planning on a company's cash holdings. Additionally, it empirically analyzes the influence of non-financial ESG management on cash holdings as well as the interaction between tax planning and ESG management on cash holdings. The analysis yields the following results. First, it was verified that the more effective a company's tax planning, the lower the level of cash holdings. Second, active ESG management was found to reduce the level of cash holdings. Furthermore, it was confirmed that the relationship between effective tax planning and ESG management leads to a decrease in cash holdings. This implies that effective tax planning can reduce cash holdings. Additionally, companies practicing ESG management tend to have lower cash holdings due to reduced capital procurement costs. Unlike previous studies, this research provides results applicable to the domestic accounting environment by utilizing the tax planning metrics proposed by Schwab et al. (2019) thereby presenting various approaches to tax planning. Importantly, it contributes by offering practical applications through identifying the relationship between ESG management and successful tax planning strategies. Furthermore, it is expected to provide new evidence for research on the efficiency of tax planning and cash holdings by incorporating ESG management evaluation factors.