Controlling Shareholders’ Stock Pledges and Corporate Tax Risk

This study explores the association of controlling shareholders' stock-pledged loans and corporate tax risk using data from Korean listed firms. Stock-pledged loans, where shares are collateralized for personal financing, create risks such as ownership-cash flow misalignments and margin call pressures, significantly affecting tax strategies. Analysis of 7,345 firm-year observations reveals a notable increase in tax risk linked to these loans. Contextual factors such as tax avoidance levels and chaebol affiliation shape this relationship. Chaebol firms mitigate tax risks through strong governance, whereas non-chaebol firms face heightened risks. These findings offer new insights into the spillover effects of stock-pledged loans.