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Does social capital constrain firms’ tax avoidance?

Author

Listed:
  • Justin Chircop
  • Michele Fabrizi
  • Elisabetta Ipino
  • Antonio Parbonetti

Abstract

Purpose - This paper aims to investigate whether the level of social capital of the region in which a firm is headquartered affects its tax avoidance activities. Social capital can be defined as the mutual trust in society and literature shows that firms headquartered in high social capital regions exhibit higher level of corporate social responsibility. Recent research suggests that some stakeholders consider tax avoidance as a socially irresponsible and illegitimate activity, whereas others deem corporate tax payments as detrimental to social welfare because they hurt economic development. Building on this debate, the relationship between social capital and tax avoidance is empirically investigated. Design/methodology/approach - A sample of 52,962 firm-year observations over the period 1990-2014 was used to empirically investigate the relationship between social capital and tax avoidance. Findings - Consistent with the idea that managers consider corporate tax payments as a socially responsible action, evidence was found that firms headquartered in areas with high social capital engage significantly less in tax avoidance activities. It was also documented that the negative impact of social capital on tax avoidance is stronger in the presence of high religiosity, high corporate performance and lower sensitivity of CEO’s compensation to stock volatility. Originality/value - This paper extends research on social capital and improves the understanding of the effect of the social environment on managerial decision. Importantly, by studying the relationship between social capital and tax avoidance, the authors add to the recent debate on companies’ perception of the desirability of tax avoidance activities from a social viewpoint.

Suggested Citation

  • Justin Chircop & Michele Fabrizi & Elisabetta Ipino & Antonio Parbonetti, 2018. "Does social capital constrain firms’ tax avoidance?," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 14(3), pages 542-565, August.
  • Handle: RePEc:eme:srjpps:srj-08-2017-0157
    DOI: 10.1108/SRJ-08-2017-0157
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    Citations

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    Cited by:

    1. Francesco Scarpa & Silvana Signori, 2023. "Understanding corporate tax responsibility: a systematic literature review," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 14(7), pages 179-201, June.
    2. Osman Issah & Lúcia Lima Rodrigues, 2021. "Corporate Social Responsibility and Corporate Tax Aggressiveness: A Scientometric Analysis of the Existing Literature to Map the Future," Sustainability, MDPI, vol. 13(11), pages 1-23, June.

    More about this item

    Keywords

    Tax avoidance; Social Capital; Tax aggressiveness; Social norm; ; H26; M41; Z13;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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