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Can tax payments complement high environmental, social, and governance reputational risk?

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  • Okuyama, Akihiro
  • TSUGAWA, Shuichi
  • Matsunaga, Chiaki
  • Managi, Shunsuke

Abstract

[Purpose] This study aims to investigate firms’ tax payment motivation from the point of corporate social responsibility by dissecting samples into firms with high, low, and no environmental, social, and governance (ESG)-related reputational risk. [Design/methodology/approach] This paper is an empirical study using 3,981 firm-year observations from 31 countries from OECD countries through 2017 to 2019. We construct panel data and use the fixed-effects model to control unobserved firm heterogeneity. To capture legal tax avoidance, we use two types of tax avoidance measurements. [Findings] We find that paying taxes can complement the high reputational risk of ESGs. However, if ESG-related reputational risk is not large, tax payments do not affect ESG risk. Our results indicate that tax payment is a matter of firms’ ESG-related reputational risk. This paper contributes to providing evidence to show that the relationship between ESG and tax avoidance is different depending on an individual firm’s level of ESG-related reputational risk. [Originality] We create a reputation-based ESG risk data set that addresses the endogeneity associated with the manager’s decision and simultaneity bias to determine the relationship between ESG and tax avoidance. Also, this is one of few studies that examine the relationship between CSR and tax avoidance internationally.

Suggested Citation

  • Okuyama, Akihiro & TSUGAWA, Shuichi & Matsunaga, Chiaki & Managi, Shunsuke, 2021. "Can tax payments complement high environmental, social, and governance reputational risk?," MPRA Paper 110464, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:110464
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Corporate social responsibility; ESG; Sustainable investment; Tax avoidance; International evidence; Reputational risk exposure;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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