Labor Union and Tax Avoidance

We examine whether the labor union has an internal monitoring role on the manager. In particular, we conduct empirical tests to investigate whether the existence of a labor union affects manager’s tax avoidance. The result indicates that a company with a labor union has significantly lower level of tax avoidance compared to a company without a union. This finding implies that the labor union has the monitoring effect and prevents manager’s pursuit of personal benefits through tax avoidance as one of various monitoring organizations (e.g., board of directors, auditor, and creditor). Also, we investigate whether the manger is an owner-manager according to the aligning of benefits between shareholders and the manager effects to the relation between labor unions and tax avoidance. The result shows that the owner-manager weakens the negative association between labor unions and tax avoidance behavior of the firm. Our paper finds that labor union, one of various monitoring organization, has an effect on tax avoidance. And our study also finds that the type of manager can influence the relation between labor union and tax avoidance. These findings of our paper have important implications for policy making regarding labor unions.