Are Tax Avoidance, Corporate Social Responsibility and Financial Performance Affecting Firm Value in the Egyptian Listed Companies?

Abstract

Although previous studies have examined the relationship between tax avoidance and corporate social responsibility, there is no evidence for this relationship in emerging economies, including Egypt that characterized by a weak institutional, enforcement systems and investor protection and a high level of corruption. Therefore, this research examines the relationship between tax avoidance and the level of corporate social responsibility disclosure and show how both have an impact on the firm value.The topic of this research is rarely investigated in the academic and business literature which is whether the level of tax avoidance influences corporate social responsibility and in turn firm value. Using a research sample of 36 non-financial listed firms during the period 2012-2018, the researcher run six multiple regression models to examine the impact of tax avoidance and corporate social responsibility, Tobin's Q ratio and firm size on firm value using the financial performance as a moderator variable (measured using margin, current ratio, asset turnover, inventory turnover, profit gross margin, ROE, ROA). The statistical results found that gross profit margin, return on assets and Tobin's Q ratio have a positive significant impact on tax avoidance, while current ratio, asset turnover, inventory turnover, return on equity and firm size have a significant negative relationship with tax avoidance. In addition findings shows that current ratio and return on equity have a positive significant impact on corporate social responsibility, while asset turnover, return on assets, Tobin's Q ratio and firm size have a significant negative relationship with corporate social responsibility. Moreover, tax avoidance, corporate responsibility social, Tobin's Q ratio and firm size found to have a positive significant impact on firm value.While corporate tax policy is generally considered separate from corporate social responsibility policy, tax evasion has greatly affected the social agenda of the company and in turns its value. Results indicate that companies involved in tax avoidance strategies are likely to increase corporate social responsibility disclosures. These results are consistent with the legitimacy theory that companies increase ESG disclosures to alleviate community concerns about low tax payments and build legitimacy.

How do board characteristics influence the ESG disclosure in Indonesia?

“…Board characteristics play a crucial role in influencing ESG disclosure practices. Research has shown that board diversity, including gender diversity, is positively associated with ESG disclosure (Manita et al, 2018;Masi et al, 2021;Nicolò et al, 2021;Wasiuzzaman & Subramaniam, 2023) According to legitimacy theory, firms with poor sustainability performance may strategically use additional sustainability disclosures to influence the perception of market participants and maintain their legitimacy (Abd-Elmageed, 2021;Kumawat & Patel, 2022). This aligns with the notion that organizations engage in ESG disclosure to mitigate concerns and maintain their legitimacy (Abd-Elmageed, 2021).…”

The moderating effect of women directors on the relationship between corporate social responsibility and corporate tax avoidance? Evidence from Malaysia

“…In addition, Abdullah (2020) found that there is a positive association between CSR and tax avoidance, and firms headquartered in low financial-tax reporting conformity jurisdictions are more likely to engage in CSR to hedge against the potential negative consequences of aggressive tax-avoidance practices as compared to firms domiciled in countries with high level of financial-tax reporting conformity. Abd-Elmageed and Abo Ashour (2021) found that that companies involved in tax avoidance strategies are likely to increase CSR disclosures. These results are consistent with the legitimacy theory that companies increase ESG disclosures to alleviate community concerns about lower tax payments and build legitimacy.…”

Social responsibility and tax evasion: organised hypocrisy of Tunisian professionals

“…These results are consistent with the statistics presented by Shafer and Simmons (2008) and confirm that CSR practices are positively related to ethical and socially responsible judgements of tax evasion and negatively related to the behavioural intentions of this practice. Abd-Elmageed and Abo Ashour (2021) also demonstrated that whilst corporate tax policy is generally considered separate from CSR policy, tax evasion has a significant impact on the social agenda worldwide, especially during the global financial crisis (Duhigg and Kocieniewski, 2012). Thus, socially responsible companies practice less tax evasion because they view the company as a “real world” entity where CSR is a legitimate business activity and not just a cost on the way to shareholder wealth maximisation (Hessaldine and Morris, 2013).…”

“…Given that most global tax revenue losses come from developing countries (Elouadi and Ben Noemene, 2015; Abd-Elmageed and Abo Ashour, 2021) and that taxes are the principal source of revenue in the majority of these countries, it is essential to contribute to the literature in this area. The conceptual framework proposed by Cobham and Janský (2018) is critical to the broader literature aimed at understanding corporate tax behaviour, particularly how firms view tax evasion from an ethical perspective.…”