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Is corporate tax avoidance related to employee treatment?

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  • Schochet, Sholom
  • Benlemlih, Mohammed
  • Jaballah, Jamil

Abstract

This paper investigates the empirical association between corporate tax avoidance and employee treatment. Using both aggressive and innocuous tax avoidance measures and MSCI ESG’s “Employee Relations” dimension, we provide strong evidence of a positive relationship between the two constructs. Our findings are robust to various measures of corporate tax avoidance and employee treatment. Our testing also indicates that the positive relationship is driven by the “strengths” dimension of employee treatment for risky tax avoidance and “concerns” for innocuous tax avoidance. Taken together, our study’s results are consistent with the theories of labor incidence and compensating differentials and suggest that employees require a compensation premium for bearing the increased financial risks resulting from CTA.

Suggested Citation

  • Schochet, Sholom & Benlemlih, Mohammed & Jaballah, Jamil, 2022. "Is corporate tax avoidance related to employee treatment?," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 63-80.
    • Handle: RePEc:eee:empfin:v:69:y:2022:i:c:p:63-80
    DOI: 10.1016/j.jempfin.2022.08.002
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    More about this item

    Keywords

    Corporate tax avoidance; Employee treatment; Compensating differentials; Labor incidence;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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