Corporate Social Responsibility and Profit Shifting

This paper studies the relationship between corporate social responsibility (CSR) and profit shifting. Using a profit-shifting measure derived from worldwide data for parent firms and their foreign subsidiaries, we find that corporate social responsibility is positively and significantly associated with profit shifting, consistent with the legitimacy theory and a risk-management strategy. Our findings are robust to a battery of sensitivity and endogeneity tests. Overall, our evidence suggests that multinational firms with higher CSR scores shift larger amounts of profits to their low-tax foreign subsidiaries, potentially indicating strategic planning in the choice of CSR investments by multinational enterprises.