Are Socially-Responsible Firms Less Likely to Expatriate? An Examination of Corporate Inversions

Abstract

This study examines whether corporate social responsibility (CSR) is related to the likelihood of corporate inversions, a legal tax planning strategy. We use a full sample to test stakeholder theory and a risk-management view of CSR. We find that firms with higher CSR performance are less likely to expatriate compared to firms with lower CSR performance. Although equity investors react positively to inversion announcements, we find that the reaction is less positive for firms with higher CSR ratings. These results are consistent with stakeholder theory. We do not find evidence that inversion firms experience significant improvements in operating performance after inversion. Overall, this study improves our understanding of the role of CSR in corporate expatriation decisions and has practical implications for a firm’s stakeholders.

Keywords: Corporate Social Responsibility; Corporate Expatriation; Inversion; Tax Avoidance; Tax Aggressiveness

JEL Classification: H20; M14; M41