Corporate social responsibility and corporate tax aggressiveness: Evidence of mandatory vs. voluntary regulatory regimes impact
-
DOIhttp://dx.doi.org/10.21511/ppm.21(2).2023.61
-
Article InfoVolume 21 2023, Issue #2, pp. 682-700
- 701 Views
-
237 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study aims to investigate whether corporate social responsibility activities are associated with more or less tax avoidance by focusing on this interrelationship in mandatory vs. voluntary regulatory regimes. The sample includes 6,668 firm-year observations of Chinese A-share firms listed on the Shanghai and Shenzhen stock exchanges over 2011–2019. The study uses corporate culture and risk management theories to develop the hypotheses. Regression analysis and various robustness tests are employed to test the hypotheses. The data are retrieved from the HEXUN CSR system and CSMAR and WIND databases.
Consistent with the predictions of corporate culture theory, which argues that aggressive tax avoidance cannot be synchronously coupled with corporate social responsibility, the paper finds that notwithstanding regulatory regime, when the level of corporate social responsibility increases, the level of tax aggressiveness decreases. Thus, the results show that firms reporting corporate social responsibility tend to be less tax aggressive. Firms that engage in more corporate social responsibility activities are less likely to be tax aggressive, irrespective of regulatory regimes in place. Moreover, pollution indicators have little effect on corporate social responsibility and tax aggressiveness in Chinese institutional settings. The study contributes to the business ethics literature by implying the role of tax avoidance as a part of CSR and not as a separate non-CSR element of companies’ activities.
Acknowledgment
This paper is co-funded by the European Union through the European Education and Culture Executive Agency (EACEA) within the project “Embracing EU corporate social responsibility: challenges and opportunities of business-society bonds transformation in Ukraine” – 101094100 – EECORE – ERASMUS-JMO-2022-HEI-TCH-RSCH-UA-IBA/ERASMUS-JMO-2022-HEI-TCHRSCH https://eecore.snau.edu.ua/
- Keywords
-
JEL Classification (Paper profile tab)G34, M14, M41
-
References36
-
Tables12
-
Figures0
-
- Table 1. Theories explaining the relationship between CSR and tax aggressiveness
- Table 2. Formation of the sample
- Table 3. Variable definition
- Table 4. Descriptive statistics
- Table 5. Multiple regression results
- Table 6. Mandatory and voluntary disclosure regression results
- Table 7. Additional analysis
- Table A1. Pearson correlation matrix
- Table A2. Robustness regression results
- Table A3. Robustness group regression results
- Table A4. Heckman’s model regression results
- Table A5. Heckman’s model group regression results
-
- Abid, S., & Dammak, S. (2022). Corporate social responsibility and tax avoidance: The case of French companies. Journal of Financial Reporting and Accounting, 20(3/4), 618-638.
- Chen, S., Chen, X., Cheng, Q., & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms? Journal of Financial Economics, 95(1), 41-61.
- Chen, Y.-C., Hung, M., & Wang, Y. (2018). The effect of mandatory CSR disclosure on firm profitability and social externalities: Evidence from China. Journal of Accounting and Economics, 65(1), 169-190.
- Cheng, C. S. A., Huang, H. H., Li, Y., & Stanfield, J. (2012). The effect of hedge fund activism on corporate tax avoidance. The Accounting Review, 87(5), 1493-1526.
- Col, B., & Patel, S. (2019). Going to haven? Corporate social responsibility and tax avoidance. Journal of Business Ethics, 154(4), 1033-1050.
- Davis, A. K., Guenther, D. A., Krull, L. K., & Williams, B. M. (2016). Do socially responsible firms pay more taxes? The Accounting Review, 91(1), 47-68.
- Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145-179.
- Ding, R., Cao, Y., & Sun, Y. (2022). The effects of mandatory CSR disclosure on tax avoidance and tax incidence. Frontiers in Psychology, 13.
- Dowling, G. R. (2014). The curious case of corporate tax avoidance: Is it socially irresponsible? Journal of Business Ethics, 124(1), 173-184.
- Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2008). Long-run corporate tax avoidance. The Accounting Review, 83(1), 61-82.
- Gavious, I., Livne, G., & Chen, E. (2022). Does tax avoidance increase or decrease when tax enforcement is stronger? Evidence using CSR heterogeneity perspective. International Review of Financial Analysis, 84, 102325.
- Gulzar, M. A., Cherian, J., Sial, M., Badulescu, A., Thu, P., Badulescu, D., & Khuong, N. (2018). Does corporate social responsibility influence corporate tax avoidance of Chinese listed companies? Sustainability, 10(12), 4549.
- Hoi, C. K., Wu, Q., & Zhang, H. (2013). Is corporate social responsibility (CSR) associated with tax avoidance? Evidence from irresponsible CSR activities. The Accounting Review, 88(6), 2025-2059.
- Huseynov, F., & Klamm, B. K. (2012). Tax avoidance, tax management and corporate social responsibility. Journal of Corporate Finance, 18(4), 804-827.
- Jiang, W., Zhang, C., & Si, C. (2022). The real effect of mandatory CSR disclosure: Evidence of corporate tax avoidance. Technological Forecasting and Social Change, 179, 121646.
- Kacem, H., & Brahim Omri, M. A. (2022). Corporate social responsibility (CSR) and tax incentives: The case of Tunisian companies. Journal of Financial Reporting and Accounting, 20(3/4), 639-666.
- Kanagaretnam, K., Lee, J., Lim, C. Y., & Lobo, G. J. (2018). Cross-country evidence on the role of independent media in constraining corporate tax aggressiveness. Journal of Business Ethics, 150(3), 879-902.
- Kim, J.-B., Li, Y., & Zhang, L. (2011). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of Financial Economics, 100(3), 639-662.
- Kim, Y., Park, M. S., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility? The Accounting Review, 87(3), 761-796.
- Kuo, C.-S. (2023). Corporate social responsibility and tax avoidance: Evidence from the 2018 tax reform in Taiwan. Review of Pacific Basin Financial Markets and Policies, 26(01), 2350007.
- Lanis, R., & Richardson, G. (2015). Is corporate social responsibility performance associated with tax avoidance? Journal of Business Ethics, 127(2), 439-457.
- Ling, Q., & Liu, L. (2023). Corporate giving and the case of tax avoidance. Advances in Accounting, 61, 100644.
- Marquis, C., Toffel, M. W., & Zhou, Y. (2016). Scrutiny, norms, and selective disclosure: A global study of greenwashing. Organization Science, 27(2), 483-504.
- Özbay, D., Adıgüzel, H., & Karahan Gökmen, M. (2023). Corporate social responsibility and tax avoidance: Channeling effect of family firms. Journal of Corporate Accounting & Finance.
- Pasko, O. (2022). Institutionally speaking, are global standards adoptable in a given jurisdiction? A critical analysis of the IFRS’s use in Ukraine through the lens of new institutional accounting. Periodica Polytechnica Social and Management Sciences, 30(1), 36-48.
- Pasko, O., Chen, F., Kuts, T., Sharko, I., & Ryzhikova, N. (2022). Sustainability reporting nexus to corporate governance in scholarly literature. Environmental Economics, 13(1), 61-78.
- Pasko, O., Chen, F., Proskurina, N., Mao, R., Gryn, V., & Pushkar, I. (2021). Are corporate social responsibility active firms less involved in earnings management? Empirical evidence from China. Business: Theory & Practice, 22(2), 504-516.
- Pasko, O., Marenych, T., Diachenko, O., Levytska, I., & Balla, I. (2021). Stakeholder engagement in sustainability reporting: The case study of Ukrainian public agricultural companies. Agricultural and Resource Economics: International Scientific E-Journal, 7(1), 58-80.
- Penrose, E. T. (1959). The theory of the growth of the firm. John Wiley & Sons, Inc.
- Preuss, L. (2010). Tax avoidance and corporate social responsibility: You can’t do both, or can you? Corporate Governance, 10(4), 365-374.
- Raithatha, M., & Shaw, T. S. (2022). Firm’s tax aggressiveness under mandatory CSR regime: Evidence after mandatory CSR regulation of India. International Review of Finance, 22(1), 286-294.
- Sánchez, J. L. F., & Sotorrío, L. L. (2007). The creation of value through corporate reputation. Journal of Business Ethics, 76(3), 335-346.
- Sarhan, A. A. (2023). Corporate social responsibility and tax avoidance: The effect of shareholding structure – Evidence from the UK. International Journal of Disclosure and Governance.
- Sikka, P. (2010). Smoke and mirrors: Corporate social responsibility and tax avoidance. Accounting Forum, 34(3-4), 153-168.
- Visser, W. V. (2011). The ages and stages of CSR: Towards the future with CSR 2.0. John Wiley & Sons, Inc.
- Watson, L. (2015). Corporate social responsibility, tax avoidance, and earnings performance. Journal of the American Taxation Association, 37(2), 1-21.