Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance

62 Pages Posted: 14 Aug 2017 Last revised: 28 Sep 2017

See all articles by Chun Keung (Stan) Hoi

Chun Keung (Stan) Hoi

Rochester Institute of Technology - Saunders College of Business

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business

Multiple version iconThere are 3 versions of this paper

Date Written: August 10, 2017

Abstract

We investigate whether the levels of social capital in US counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative associations between social capital and corporate tax avoidance, as captured by effective tax rates and book-tax differences. These results are incremental to the effects of local religiosity and firm culture toward socially-irresponsible activities. They are robust to using organ donation as an alternative social capital proxy and fixed effect regressions. They extend to aggressive tax avoidance practices. Additionally, we provide corroborating evidence using firms with headquarter relocation that changes the exposure to social capital. We conclude that social capital surrounding corporate headquarters provides environmental influences constraining corporate tax avoidance.

Keywords: tax avoidance, tax aggressiveness, social capital, social norm, social network

JEL Classification: A13, H26, M40, M41, Z13

Suggested Citation

Hoi, Chun Keung (Stan) and Hasan, Iftekhar and Wu, Qiang and Zhang, Hao, Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance (August 10, 2017). Bank of Finland Research Discussion Paper No. 21/2017. Available at SSRN: https://ssrn.com/abstract=3017177

Chun Keung (Stan) Hoi

Rochester Institute of Technology - Saunders College of Business ( email )

105 Lomb Memorial Drive
Rochester, NY 14623
United States
585-475-2718 (Phone)

Iftekhar Hasan (Contact Author)

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

110 8th St
Troy, NY 12180
United States
518-276-3338 (Phone)
518-276-8661 (Fax)

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business ( email )

105 Lomb Memorial Dr.
Rochester, NY 14623
United States

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