Societal trust and corporate tax avoidance

Kanagaretnam, Kiridaran; Lee, Jimmy; Lim, Chee Yeow; Lobo, Gerald J.

doi:10.1007/s11142-018-9466-y

Cited by 148 publications

(66 citation statements)

References 54 publications

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“…Thus, as noted earlier, further examining the effect of corporate governance on the relation between social responsibility and tax may prove helpful to our understanding. Kanagaretnam et al (2018b) use an international sample of firms in 25 countries and find that societal trust is negatively associated with tax avoidance. They hypothesize that societal trust is an informal institution that punishes those who break social constructs or norms by being shunned by society.…”

Section: The Effect Of the Firm's Operating Environment And Societymentioning

confidence: 99%

A Review of Corporate Social Responsibility and Reputational Costs in the Tax Avoidance Literature*

Krieg

2021

Accounting Perspectives

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In recent years, academic researchers, policymakers, and the public have increasingly focused on the tax avoidance behavior of corporations. At the same time, firms are increasingly pressured to incorporate corporate social responsibility (CSR) into their decision making, leading to heightened academic interest in CSR. Given that opponents of corporate tax avoidance often argue that avoiding tax is socially irresponsible, we review the growing literature surrounding this issue. We begin with a theoretical review of how corporate tax avoidance fits into the CSR framework. We then review the empirical evidence on the interrelationship between CSR and firm reputation in the tax avoidance literature. We frame our review around three questions: (i) Do firms view tax avoidance as a CSR issue? (ii) Do stakeholders view tax avoidance as socially irresponsible, leading to reputational costs of tax avoidance? And (iii) Do firms change their tax avoidance behavior due to fear of these reputational consequences? Throughout our review, we provide discussions on the state of the current literature and offer suggestions for future research opportunities.

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Section: The Effect Of the Firm's Operating Environment And Societymentioning

confidence: 99%

A Review of Corporate Social Responsibility and Reputational Costs in the Tax Avoidance Literature*

Krieg

2021

Accounting Perspectives

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“…Previous evidence suggests that civic norms and societal trust influence corporate and executive behavior through the pressure of social norms (Guan et al, 2020;Kanagaretnam et al, 2018;Pevzner et al, 2015). Gębka et al (2017) argue that as insider trading may be seen as opportunistic and costly to the shareholders, certain societies might discourage managers in engaging in such activities.…”

Section: Civic Norms and Societal Trustmentioning

confidence: 99%

Network centrality and value relevance of insider trading: Evidence from Europe

Afzali

Martikainen

2021

The Financial Review

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We examine the value relevance of insider trades in Europe and find that both purchases and sales of well-connected insiders are positively associated with long-term abnormal returns. We argue that the market perceives the purchases of networked insiders as more informative, leading to higher returns. For sales of networked insiders, the market decreases their negative information content, leading to lower negative returns. Our results do not support the view that insiders use their informational advantage to extract economic rents in the form of dollar profits. We posit that they use their networks to provide signals to the market when trading.

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“…Tax savings are important benefits of tax management, while costs involve possible fines and reputational costs (Lanis and Richardson, 2011). Societal trust is an important reason for tax management because managers in societies with greater social trust avoid evading taxes so as not to be rejected by society for breaking social norms (Kanagaretnam et al, 2018). In contrast, if the costs for breaking social norms are relatively low, managers may aggressively avoid taxes to increase firm value for their shareholders.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Firm and country characteristics related to cumulative contribution to society

Serrano‐Cinca

Cuéllar-Fernández

Fuertes‐Callén

2020

SAMPJ

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Purpose Many indicators attempt to measure the social performance of a company from different perspectives. Grounded in stakeholder theory, this paper aims to propose capitalising the economic value distributed annually to society over a period of time, hereafter called a firm’s cumulative contribution to society (CCS). This can be done by including everything that stakeholders value; for example, payments of taxes, remuneration of employees, payments to suppliers and creditors, donations, dividends, research and development expenses and efforts to improve the environment. Design/methodology/approach First, this paper makes a methodological proposal about how to calculate the CCS and discusses potentials and shortcomings. Then, a set of hypotheses are formulated about the firm characteristics and country attributes that make the most positive contribution to society such as business models, financial performance, a country’s human development, income equality and the extent of its shadow economy. The authors also argue that a company that originally contributes to society will continue to do so because of the structural inertia faced by organisations. The hypotheses were validated with an empirical study conducted with a sample of 9,276 new-born European companies. Findings The most significant contributors to society are large, profitable companies, which are leveraged but solvent, with high asset turnover and high-profit margins and which are productive and pay high wages. Unfortunately, this win-win situation describes a small percentage of the explained variance, which can explain why social and financial performance sometimes do not go hand-in-hand. The paper identifies features of other types of companies that contribute to society, suggesting criteria for socially responsible investors. Country development favours the cumulative contribution that firms make to society. Research limitations/implications Most accounting systems do not collect all the information necessary to calculate a refined version of the indicator such as percentage of purchases from local suppliers, percentage of salaries for executives and disabled employees and percentage of financing from socially responsible financial entities. The authors encourage modification of the accounting systems to include those aspects. Practical implications This paper identifies several types of companies that contribute the most to society from a modest set of financial indicators. Socially responsible investors can estimate their contribution to society, devising new investment criteria. Social implications The paper identifies several types of companies that contribute the most to society from a modest set of financial indicators. Socially responsible investors can estimate their contribution to society, devising new investment criteria. Originality/value The paper makes two contributions, one methodological and the other empirical. By applying a financial methodology, the authors propose to capitalise the contributions of a company over a period of time. The empirical study identifies both firm and country characteristics that explain CCS.

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Societal trust and corporate tax avoidance

Cited by 148 publications

References 54 publications

A Review of Corporate Social Responsibility and Reputational Costs in the Tax Avoidance Literature*

A Review of Corporate Social Responsibility and Reputational Costs in the Tax Avoidance Literature*

Network centrality and value relevance of insider trading: Evidence from Europe

Firm and country characteristics related to cumulative contribution to society

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