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The Moral Licensing Effects of Corporate Reputation on Tax Planning

Author

Listed:
  • Yu Bai

    (Louisiana State University in Shreveport, Shreveport, LA 71115, USA)

  • Lanyi Yan Zhang

    (University of Houston Downtown, Houston, TX 77002, USA)

  • Lin Wang

    (Midwestern State University, Wichita Falls, TX 76308, USA)

Abstract

In this paper, we investigate how a firm’s reputation affects its tax planning. Drawing on the moral licensing view, we utilize a substantial dataset to test the relationship between a firm’s overall reputation standing and its propensity for tax avoidance, employing a variety of tax-related measures capturing different tax avoidance tactics. We hypothesize and find that firms with higher reputations are more inclined to engage in tax avoidance, often through tax strategies that involve a certain degree of ambiguity in transgression. Furthermore, our study indicates that highly reputable firms are less likely to participate in tax strategies that are blatant transgressions. This study adds to the body of knowledge on the correlation between reputation and tax avoidance. We enhance this field by proposing and examining the moral licensing view as a complementary perspective to comprehend this dynamic. The results of our study indicate that the deterrent power of reputation in tax avoidance may be overestimated, yielding significant insights for policymakers and practitioners.

Suggested Citation

  • Yu Bai & Lanyi Yan Zhang & Lin Wang, 2024. "The Moral Licensing Effects of Corporate Reputation on Tax Planning," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 27(02), pages 1-27, June.
    • Handle: RePEc:wsi:rpbfmp:v:27:y:2024:i:02:n:s0219091524500164
    DOI: 10.1142/S0219091524500164
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