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Does Tax‐Aggressive Behavior Motivate More CSR Engagement?
Author(s) -
Wang Xin,
Chan Kam Fong,
Chang Millicent,
Shan Yuan George,
Yang Joey W.
Publication year - 2025
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/ecpo.12333
Subject(s) - economics , corporate social responsibility , public economics , political science , public relations
ABSTRACT Using an international sample of listed companies from 36 countries, we investigate whether firms' engagement in tax‐aggressive behavior drives them to increase their corporate social responsibility (CSR) and environmental, social, and governance (ESG) activities. Consistent with the reputation risk mitigation theory, our results show that U.S. and Canadian firms ramp up their ESG activities 4 years after engaging in tax‐aggressive practices, aligning with the typical duration for the IRS (Internal Revenue Service) investigations. In contrast, firms in other countries act sooner, within 2–3 years. Further analysis shows that firms in countries with stringent law enforcement, and those adopting International Financial Reporting Standards, are less likely to enhance CSR/ESG activities following aggressive tax policies. These findings highlight the significant influence of regulatory and disclosure environments in shaping corporate behavior in tax policies.