Corporate social responsibility and tax avoidance: the moderating role of economic freedom

Abstract

Purpose

Previous studies on the relationship between corporate social responsibility (CSR) and tax avoidance (TA) have found inconclusive results. Academics have suggested deepening our understanding of this relationship. Although a few studies have responded to this call, research toward moderating variables is still nascent. The purpose of this study is to analyze the moderating role of economic freedom (EF) and its interaction with power distance (PD) on the relationship between CSR and TA.

Design/methodology/approach

Based on a sample of 3,866 publicly listed firms from 44 countries over the period 2010–2018, the authors use multivariate regressions techniques to investigate whether and how EF moderates the relationship between CRS and TA and how PD influences this effect.

Findings

Findings indicate that the potentially positive relationship between CSR and TA is weaker for firms in institutional environments with higher EF. Moreover, we find that this moderating effect is stronger when PD is lower.

Practical implications

This study has important implications. It offers insights for managers to reflect on their CSR and taxation practices, and for policymakers to consider the institutional conditions that facilitate corporations’ social and tax-responsible behavior. These findings indicate the necessity of integrating cultural, regulatory and collaborative elements to observe corporations engaged in social and tax-responsible behavior.

Originality/value

To the best of the authors’ knowledge, this is the first study to investigate the moderating effect of EF on the relationship between CSR and TA, and its interaction with PD. Moreover, our sample includes firms based in Europe, North and South America, Asia and Oceania, facilitating the study of EF and PD’s broad diversity.

Citation

Acosta Garcia, C., Verleyen, I. and Roggeman, A. (2024), "Corporate social responsibility and tax avoidance: the moderating role of economic freedom", Society and Business Review, Vol. 19 No. 4, pp. 620-647. https://doi.org/10.1108/SBR-11-2023-0345