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Study on Corporate Social Responsibility (CSR): Focus on Tax Avoidance and Financial Ratio Analysis

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  • Jeongho Kim

    (Department of Accounting and Taxation, Silla University, Busan 46958, Korea)

  • Chaechang Im

    (Research Assistant of Institute of Global Business Research, Hankuk University of Foreign Studies, Seoul 02450, Korea)

Abstract

This study is an attempt to find a causal relation between financial ratios and tax avoidance. Aside from direct financial responsibilities, we conjecture that firms that avoid taxes will also face indirect negative financial repercussions, such as degradation of their reputation in the investment market. Corporate Social Responsibility (CSR: Corporate Social Responsibility) activities are reflected in the market as firms make a commitment to society, and investors perceive a positive value in an investment in such firms. Between the two contradictory drivers, tax avoidance and CSR activities, we seek to find their interplaying relation with financial ratios. From this study, tax authorities can regulate firms that engage in tax avoidance and encourage firms to conduct CSR activities. We summarize our findings as below: First, CSR activities deter tax avoidance, specifically in firms that are actively engaged in CSR. On the other hand, passive involvement in CSR does not have any influence on tax avoidance. Secondly, we find that current asset turnover, the labor-to-equipment ratio, the noncurrent liabilities ratio, and the net income-to-equity ratio all have a positive and significant influence on corporate tax avoidance. Conversely, common equity growth has been shown to be negatively related with corporate tax avoidance. From this empirical study, we contribute to the studies on tax avoidance by showing that there can be a voluntary method to reduce corporate tax avoidance in firms, which is by encouraging them to engage in CSR activities.

Suggested Citation

  • Jeongho Kim & Chaechang Im, 2017. "Study on Corporate Social Responsibility (CSR): Focus on Tax Avoidance and Financial Ratio Analysis," Sustainability, MDPI, vol. 9(10), pages 1-15, September.
  • Handle: RePEc:gam:jsusta:v:9:y:2017:i:10:p:1710-:d:113018
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    References listed on IDEAS

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    1. Desai, Mihir A. & Dharmapala, Dhammika, 2006. "Corporate tax avoidance and high-powered incentives," Journal of Financial Economics, Elsevier, vol. 79(1), pages 145-179, January.
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    Cited by:

    1. Anne Van de Vijver & Danny Cassimon & Peter-Jan Engelen, 2020. "A Real Option Approach to Sustainable Corporate Tax Behavior," Sustainability, MDPI, vol. 12(13), pages 1-17, July.
    2. Obey Dzomonda & Olawale Fatoki, 2020. "Environmental Sustainability Commitment and Financial Performance of Firms Listed on the Johannesburg Stock Exchange (JSE)," IJERPH, MDPI, vol. 17(20), pages 1-21, October.
    3. Vadim Zasko & Elena Sidorova & Vera Komarova & Diana Boboshko & Olesya Dontsova, 2021. "Digitization of the Customs Revenue Administration as a Factor of the Enhancement of the Budget Efficiency of the Russian Federation," Sustainability, MDPI, vol. 13(19), pages 1-17, September.
    4. Liliana Nicoleta Simionescu & Ștefan Cristian Gherghina & Ziad Sheikha & Hiba Tawil, 2020. "Does Water, Waste, and Energy Consumption Influence Firm Performance? Panel Data Evidence from S&P 500 Information Technology Sector," IJERPH, MDPI, vol. 17(14), pages 1-31, July.
    5. Elena Fernández-Rodríguez & Roberto García-Fernández & Antonio Martínez-Arias, 2019. "Influence of Ownership Structure on the Determinants of Effective Tax Rates of Spanish Companies," Sustainability, MDPI, vol. 11(5), pages 1-19, March.
    6. 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.
    7. Joshua Aronmwan, Edosa & Okafor, Chinwuba, 2019. "Corporate Tax Avoidance: Review Of Measures And Prospects," International Journal of Contemporary Accounting Issues-IJCAI (formerly International Journal of Accounting & Finance IJAF), The Institute of Chartered Accountants of Nigeria (ICAN), vol. 8(2), pages 21-42, September.
    8. Kuo-Shing Chen & Chien-Chiang Lee & Huolien Tsai, 2019. "Taxation of Wealthy Individuals, Inequality Governance and Corporate Social Responsibility," Sustainability, MDPI, vol. 11(7), pages 1-23, March.
    9. Patrick Velte, 2023. "Sustainable institutional investors, corporate sustainability performance, and corporate tax avoidance: Empirical evidence for the European capital market," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(5), pages 2406-2418, September.
    10. Fabio Caputo & Simone Pizzi, 2021. "Ethical Firms and Web Reporting: Empirical Evidence about the Voluntary Adoption of the Italian “Legality Rating”," International Journal of Business and Management, Canadian Center of Science and Education, vol. 14(1), pages 1-36, July.

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