TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Thursday, September 1, 2011

Corporate Social Responsibility and Tax Aggressiveness

Social Influences on Aggressive Accounting: The Impact of Corporate Social Responsibility on Tax Aggressiveness, by Luke Watson (Penn State):

I examine the relationship between corporate social responsibility (CSR) and tax aggressiveness using two book-tax difference measures of tax aggressiveness as well as 5-year cash effective tax rates. The empirical results of this study indicate that socially irresponsible firms have larger book-tax differences than socially neutral firms and socially responsible firms. Socially responsible firms’ 5-year cash effective tax rates are higher than those of socially neutral firms, and marginally higher than those of socially irresponsible firms. I interpret these results to be consistent with firm reputations for CSR attracting consumers and investors with similar values or social norms. Firms then tend to make decisions in line with the social norms so as to avoid costs of deviation. Overall, the evidence is consistent with CSR reducing tax aggressiveness.

Corporate Social Responsibility and Tax Aggressiveness, by Grant A. Richardson (City University of Hong Kong) & Roman Lanis:

This study examines the association between corporate social responsibility and corporate tax aggressiveness. Based on a sample of 408 publicly listed Australian corporations for the 2008/2009 financial year, our regression results indicate that the higher the level of corporate social responsibility disclosure of a corporation, the lower is the level of tax aggressiveness. We find a negative and statistically significant association between corporate social responsibility disclosure and tax aggressiveness which holds across a number of different regression model specifications. Accordingly, our results show that more socially responsible corporations are likely to deter tax aggressive activities. Finally, the regression results from our additional analysis indicate that the social investment commitment, and corporate and CSR strategy (including the ethics and business conduct) of a corporation are important elements of CSR activities that have a negative impact on tax aggressiveness.

http://taxprof.typepad.com/taxprof_blog/2011/09/corporate-social.html

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