The Impact of Tax Management on CSR Perceptions

Abstract

Corporate tax management that reduces taxes paid has been linked in the media to social irresponsibility. This, in turn, can lead to corporate tax risk due to the potential reputational damage stemming from tax reduction being viewed as irresponsible. Perhaps due to this, management’s concern about managing corporate tax risk has increased in recent years. However, little empirical research has been conducted to assess whether consumers and investors naturally incorporate corporate tax management into their perceptions of corporate social responsibility (“CSR”). I experimentally examine whether this relation exists and to what extent it might impact investor and consumer behaviors. As a follow-up, I examine whether this relation is moderated by two factors: the country in which the tax management occurs and the availability of firm-issued CSR information. I find that managing corporate taxes downward has a significant negative relation with CSR perceptions. I further find that this relation is moderated by the availability of a firm-issued voluntary CSR disclosure. I also find evidence that effective tax management negatively impacts non-professional investors’ willingness to invest in a company. Interestingly, I find no support that a firm’s tax management meaningfully changes consumer purchasing behaviors. Thus, while taxes paid may impact CSR perceptions, this impact does not appear to extend to behavior. Results from my study demonstrate the important role that corporate tax management and firm-issued CSR disclosures can play in influencing perceptions of CSR.