This study aims to investigate the relationship between corporate social responsibility (CSR) engagement and tax avoidance, exploring whether firms engage in “organized hypocrisy” – leveraging CSR initiatives to maintain legitimacy while simultaneously engaging in aggressive tax planning. The study further examines the moderating effects of institutional environments and industry characteristics.
Using a panel data set of firms from 12 countries over the period 2006–2019, this study applies fixed-effects regression models to assess the relationship between CSR engagement and tax avoidance. Multiple robustness tests, including alternative measures of CSR and tax avoidance as well as two-stage least squares (2SLS) estimation, ensure the reliability of results.
The authors find that higher CSR engagement is associated with greater tax avoidance. The relationship is shaped by institutional and industry contexts: it is stronger for firms in liberal market economies and in environmentally sensitive industries. These findings remain robust to alternative measures of CSR and tax avoidance and to tests including or excluding US firms.
The findings have implications for policymakers, regulators and standard setters, highlighting the need to enhance transparency in CSR disclosures and corporate tax policies. Strengthening regulatory frameworks may help curb opportunistic CSR practices used to justify aggressive tax planning.
The study underscores the potential societal consequences of firms using CSR engagement to obscure tax avoidance strategies. By diverting financial resources from public funds to shareholders, such practices may undermine government revenues needed for essential public services and infrastructure development.
This study contributes novel empirical evidence to the literature by demonstrating how firms simultaneously engage in CSR and tax avoidance, extending the concept of organized hypocrisy to corporate tax policy. By incorporating cross-country data, it provides a broader institutional perspective on the relationship between CSR and tax behavior.
