Corporate Taxes and Corporate Social Responsibility

71 Pages Posted: 29 Sep 2020 Last revised: 5 Dec 2024

See all articles by Xin Chang

Xin Chang

Nanyang Business School, Nanyang Technological University

Yaling Jin

Southwestern University of Finance and Economics

Endong Yang

University of Macau - Department of Finance and Business Economics; University of Macau - Asia-Pacific Academy of Economics and Management

Wenrui Zhang

Colorado State University, Fort Collins - Department of Finance & Real Estate

Date Written: October 8, 2023

Abstract

Exploiting staggered changes in state-level corporate income taxes, we document that corporate social responsibility (CSR) performance improves substantially following tax cuts, reflecting firms’ reliance on internal funds for CSR investments. However, tax increases do not significantly weaken CSR performance, implying that CSR commitments are sticky on the upside. Tax cuts enhance CSR performance more for firms with greater tax exposure, tighter financial constraints, stronger prosocial preferences, or higher risk. Additional analysis of the 2017 federal tax reform substantiates the CSR effect of tax cuts. Overall, our findings highlight essential CSR features and illustrate how corporate tax policy drives corporate sustainability.

Keywords: corporate income taxes, corporate social responsibility (CSR), ESG, sustainability, fiscal policy

JEL Classification: H25, G30, G38, M14

Suggested Citation

Chang, Xin and Jin, Yaling and Yang, Endong and Zhang, Wenrui, Corporate Taxes and Corporate Social Responsibility (October 8, 2023). 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 (Contact Author)

Southwestern University of Finance and Economics ( email )

Chengdu
China

Endong Yang

University of Macau - Department of Finance and Business Economics ( email )

Avenida da Universidade
Taipa
Macau, 000000
Macau

HOME PAGE: http://https://fba.um.edu.mo/faculty/endongyang/

University of Macau - Asia-Pacific Academy of Economics and Management ( email )

Macau
Macau

HOME PAGE: http://https://fba.um.edu.mo/faculty/endongyang/

Wenrui Zhang

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

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