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Does Tax‐Aggressive Behavior Motivate More CSR Engagement?

Author

Listed:
  • Xin Wang
  • Kam Fong Chan
  • Millicent Chang
  • Yuan George Shan
  • Joey W. Yang

Abstract

Using an international sample of listed companies from 36 countries, we investigate whether firms' engagement in tax‐aggressive behavior drives them to increase their corporate social responsibility (CSR) and environmental, social, and governance (ESG) activities. Consistent with the reputation risk mitigation theory, our results show that U.S. and Canadian firms ramp up their ESG activities 4 years after engaging in tax‐aggressive practices, aligning with the typical duration for the IRS (Internal Revenue Service) investigations. In contrast, firms in other countries act sooner, within 2–3 years. Further analysis shows that firms in countries with stringent law enforcement, and those adopting International Financial Reporting Standards, are less likely to enhance CSR/ESG activities following aggressive tax policies. These findings highlight the significant influence of regulatory and disclosure environments in shaping corporate behavior in tax policies.

Suggested Citation

  • Xin Wang & Kam Fong Chan & Millicent Chang & Yuan George Shan & Joey W. Yang, 2025. "Does Tax‐Aggressive Behavior Motivate More CSR Engagement?," Economics and Politics, Wiley Blackwell, vol. 37(2), pages 669-684, July.
    • Handle: RePEc:bla:ecopol:v:37:y:2025:i:2:p:669-684
    DOI: 10.1111/ecpo.12333
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    References listed on IDEAS

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