Characteristics of Companies with Outside Directors from the National Tax Service

Outside directors provide advice to the CEO with expertise and independence. Due to the characteristics of Korea, outside directors are positioned as an important axis of corporate governance that monitors managers under a governance structure in which ownership and management are aligned. However, there are many cases in which outside directors are appointed by maintaining only the formal independence of outside directors and weakening their substantive independence such as regional or school ties. This study examines the characteristics of listed companies with National Tax Service among outside directors from 2003 to 2010. These companies are large and have low debt ratios. On the other hand, the company's growth rate was low and there was a negative (-) correlation with the market-book value ratio. Also, there was a significant positive (+) correlation with the tax subsidy measure. Taken together, this result suggests that companies that hire outside directors from the National Tax Service are large and have good financial soundness, but have low growth rates and benefit from expert advice from outside directors in terms of tax reduction. This study has a contribution in that it reveals the advisory function of outside directors from the National Tax Service.