Tax Aggressiveness, Corporate Social Responsibility, and Ownership Structure

Abstract

Tax is one of the most significant business costs incurred by firms, and it has a direct impact on profitability and shareholder value. Consequently, firms have financial incentives to be tax aggressive. However, tax aggressive behavior may adversely impact a firm’s reputation, an invaluable asset. Furthermore, paying one’s fair share of taxes is an important component of corporate social responsibility. Hence, socially responsible firms that are concerned about preserving their good reputation should be less tax aggressive. This study investigates whether socially responsible firms are less tax aggressive, that is, whether their talk as defined by 'corporate social behaviors' and their actions as defined by 'paying their fair share of taxes' are aligned, and whether this relationship differs between family and non-family firms. Based on archival data for 2004–2008 on a panel of Canadian firms, the results indicate that family firms are less tax aggressive than non-family firms. In addition, the findings suggest that tax behaviors are not necessarily aligned with corporate social responsibility, and that the ownership structure moderates this relationship. The findings also underscore the importance of considering corporate social responsibility dimensions separately when investigating the relationship between tax aggressiveness and corporate social responsibility.

Keywords: Corporate Social Responsibility, Family and Non-Family Firms, Reputation, Tax aggressiveness

JEL Classification: G32, H26, M14, M49