Corporate Social Responsibility and Profit Shifting

56 Pages Posted: 31 Jan 2019 Last revised: 29 Jan 2023

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School

Pantelis Kazakis

University of Glasgow

Woon Sau Leung

University of Southampton - Southampton Business School

Date Written: September 17, 2021

Abstract

This paper examines the relation between corporate social responsibility (CSR) performance and tax motivated income shifting. Using a profit shifting measure estimated from multinational enterprises (MNEs) data, we find that parent firms with higher CSR scores shift significantly more profits to their low-tax foreign subsidiaries. The relation is more pronounced for parent firms in countries where the strategic incentives and benefits to accrue ‘moral capital’ are greater, as captured by weaker legal and government institutions, higher consumer activism, and greater press freedom. Overall, our evidence suggests that MNEs engaging in CSR activities acquire legitimacy and moral capital that temper negative responses by stakeholders and thus have greater scope and chance to engage in unethical profit-shifting activities, consistent with the legitimacy theory.

Keywords: Corporate Social Responsibility; Legitimacy Theory; Risk Management; Profit Shifting; Corporate Tax Systems; Agency Problems

JEL Classification: F23, G30, G32, H25, H26, L10, L21, M14

Suggested Citation

Hasan, Iftekhar and Karavitis, Panagiotis and Kazakis, Pantelis and Leung, Woon Sau, Corporate Social Responsibility and Profit Shifting (September 17, 2021). Available at SSRN: https://ssrn.com/abstract=3318861 or http://dx.doi.org/10.2139/ssrn.3318861

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Glasgow
Glasgow, West End G12 8QQ
United Kingdom

HOME PAGE: http://https://www.gla.ac.uk/schools/business/staff/panagiotiskaravitis/

Pantelis Kazakis

University of Glasgow ( email )

Adam Smith Business School
2 Discovery Place
Glasgow, Scotland G11 6EY
United Kingdom

HOME PAGE: http://sites.google.com/site/panteliskazakis/home

Woon Sau Leung

University of Southampton - Southampton Business School ( email )

Highfield
University Road
Southampton, SO17 1BJ
United Kingdom

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