The Role of the Cumulative Voting System in the Control of Tax Avoidance

A companies limited by shares—a common modern corporate form—have the advantages of limited liability and free transfer of shares; however, they suffer from the structural agency problem. Governance is necessary to prevent managers from engaging in private profit-seeking activities. South Korea established the cumulative voting (CV) system to enhance minority shareholders' rights and control management impropriety. However, CV is a burden to businesses, and most avoid it by excluding it from the articles of association because it has no legal force. This study highlights the necessity of the CV system, demonstrating that its adoption reduces tax avoidance by allowing minority shareholders to monitor management.