Corporate Social Responsibility and Profit Shifting

59 Pages Posted: 31 Jan 2019 Last revised: 14 Oct 2020

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 - Adam Smith Business School

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh

Date Written: October 14, 2020

Abstract

This paper studies the relationship between corporate social responsibility (CSR) and profit shifting. Using a profit-shifting measure derived from worldwide data for parent firms and their foreign subsidiaries, we find that corporate social responsibility is positively and significantly associated with profit shifting, consistent with the legitimacy theory and a risk-management strategy. Such a positive relationship is more pronounced in parent firms located in countries under the territorial tax system and in countries where product boycotting is more prevalent. Our findings are robust to a battery of sensitivity and endogeneity tests. Overall, our evidence suggests that multinational firms with higher CSR scores shift larger amounts of profits to their low-tax foreign subsidiaries, potentially indicating strategic planning in the choice of CSR investments by multinational enterprises.

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 (October 14, 2020). 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 - Adam Smith Business School ( email )

Adam Smith Business School
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

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

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh ( email )

29 Buccleuch Pl
Edinburgh, Scotland EH8 9JS
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
300
Abstract Views
2,522
rank
116,726
PlumX Metrics