Shouldn’t firms demonstrating noteworthy environmental or social responsibility be less likely to pursue aggressive strategies to minimize their tax obligations? Previous studies, whether theoretical or empirical, reach contradictory answers. While several do show a negative correlation between corporate social responsibility (CSR) and aggressive tax planning, others indicate a positive or negligible relationship.
In an article written with Tânia Montenegro (UMinho) and Filomena Brás (UMinho), Mário Marques (ORGMAN) investigates the extent to which differences in study design drive the disparate, contradictory results found in the literature. He conducts a meta-analysis on 117 estimates from 23 studies. According to Mário, the way tax aggressiveness and CSR are measured is key. For example, studies that use tax rate differences as a proxy for tax avoidance or consider few dimensions of CSR tend to show a weaker association between the two. On the other hand, studies that use measures like tax lobbying expenditures or consider socially irresponsible activities to assess CSR find a stronger, positive connection. Additionally, various aspects of the study design have a notable impact on estimates. These include the sample used, the treatment of firms’ accumulated losses, and the introduction of time fixed effects.
A meta-regression also allows the prediction of the estimated association that a hypothetical study, with a plausible design, would reach. According to Mario’s findings, a relation between CSR and tax avoidance is non-existent in most methodologically defensible designs. He argues that this result reminds us that firms are not unitary agents: those responsible for financial decisions are typically not the ones prioritizing CSR. The upshot is, in practice, a decoupling of the two. Still, Mário’s findings suggest that firms exhibiting significant social irresponsibility also tend to engage in particularly aggressive tax planning practices. He believes that organizational culture may be a relevant factor in such cases.
In addition to his occasional forays into meta-theoretical territory, Mário primarily focuses on the impact of taxes on firms’ investment and location decisions. Currently, he is actively researching multinational firms’ intra-group, profit-shifting practices in response to the generous tax exemptions found in several jurisdictions.
