Carbon Risk and Corporate Tax Avoidance: Do Institutional Investors Drive Business to Organize for Social Good?

Abstract

This study investigates the impact of carbon risk on tax avoidance strategies, analyzing a dataset comprising 854 American corporations observed from 2015 to 2022. By using the two‐stage least squares (2SLS) regression method with instrumental variables, the findings provide evidence that carbon risk increases tax avoidance. Furthermore, institutional investors moderate this relationship by attenuating the positive impact of carbon risk on tax avoidance. This paper offers an in‐depth understanding of the impact of carbon risk on tax avoidance, enriching the debate on what constitutes good and bad business practices. Additionally, it adds new attributes to explore the fundamental question of what makes business good? Finally, it highlights some recommendations to advance the dialog on the concept of organizing for social good.