Corporate Taxes and Corporate Social Responsibility

59 Pages Posted: 29 Sep 2020 Last revised: 10 Mar 2021

See all articles by Xin Chang

Xin Chang

Nanyang Business School, Nanyang Technological University

Yaling Jin

Nanyang Business School, Nanyang Technological University

Endong Yang

Faculty of Business Administration, University of Macau

Wenrui Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance

Date Written: September 7, 2020

Abstract

This paper examines the impact of corporate taxes on firms’ corporate social responsibility (CSR), by exploiting the staggered changes in corporate taxes across U.S. states as a quasi-natural experiment. Firms enhance CSR performance significantly following tax cuts, but they do not reduce CSR in response to tax increases, consistent with the rigidity of CSR. The effect of tax decrease on CSR is more pronounced for firms that are more affected by state-level tax changes, more financially constrained, headquartered in more CSR-friendly states, owned by more socially responsible institutional investors, in more competitive industries, or led by CEOs who are more long-term oriented. The evidence suggests that tax cuts alleviate financing constraints, thereby enabling firms to be more socially responsible. Overall, our findings shed light on how fiscal policy shapes companies’ incentives to be socially responsible.

Keywords: Corporate Taxes, Corporate Social Responsibility (CSR)

JEL Classification: G30, G38, H25, M14

Suggested Citation

Chang, Xin and Jin, Yaling and Yang, Endong and Zhang, Wenrui, Corporate Taxes and Corporate Social Responsibility (September 7, 2020). Nanyang Business School Research Paper No. 20-18, Available at SSRN: https://ssrn.com/abstract=3694203 or http://dx.doi.org/10.2139/ssrn.3694203

Xin Chang

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

HOME PAGE: https://personal.ntu.edu.sg/changxin/

Yaling Jin

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Endong Yang (Contact Author)

Faculty of Business Administration, University of Macau ( email )

Macau

Wenrui Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

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