Do Socially Responsible Firms Pay More Taxes?

Abstract

We investigate the relation between corporate tax payments and corporate social responsibility. Because existing theory and empirical studies find inconsistent evidence on the relation between these constructs, we investigate whether the two activities act as complements or substitutes. We estimate the relation between measures of corporate social responsibility and (1) the amount of corporate taxes paid, and (2) the amount invested in tax lobbying activities using both ordinary least squares and a system of simultaneous equations. We find consistent evidence that corporate social responsibility is negatively related to five-year cash effective tax rates and positively related to tax lobbying expenditures. Our evidence suggests that, on average, corporate social responsibility and tax payments act as substitutes. Data Availability: Data are available from sources identified in the paper.

Corporate Tax Payments and Corporate Social Responsibility: Complements or Substitutes? Empirical Evidence from Europe

“…Recent empirical studies by Lanis and Richardson [3,17]; Davis et al [1]; Huseynov and Klamm [4]; Hoi et al [5]; Landry et al [6] and Watson [7] differ from ours in either the sample or the CSR measures used.…”

“…In fact, one empirical study suggests a negative relation between CSR and CTP. Davis et al [1] recent study employing an OLS and a 3SLS regression investigates the relation between CSR and CTP. Their sample includes 5,588 observations of US public firms that have data on the KLD data set from 2006 to 2011.…”

“…Davis et al [1] argue that stakeholders have different views on corporate tax payments (CTP) in a corporate social responsibility (CSR) context and CSR guidelines discuss CTP to a varying extent. This suggests mixed evidence on the importance of CTP in the context of CSR.…”

“…We use the methodological framework introduced by Davis et al [1] to operationalize the firms substitutes and complements. A positive relation means that firms view CSR and CTP in the same way.…”

“…Similarly, firms may be apprehensive of negative perceptions due to lower CTP. In this case, firms with lower CTP compared to their 1 Selection process of literature included: Five online databases which could be searched for articles were identified. These include EBSCO, ProQuest, Wiley Online, Science Direct and Emerald Insight within which English language articles were searched using the terms "corporate social responsibility" combined (connector AND) with the term "tax".…”