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Corporate taxes and corporate social responsibility

Author

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  • Chang, Xin
  • Jin, Yaling
  • Yang, Endong
  • Zhang, Wenrui

Abstract

Exploiting staggered changes in state-level corporate income taxes, we document that corporate social responsibility (CSR) performance improves substantially following tax cuts, reflecting firms' reliance on internal funds for CSR investments. However, tax increases do not significantly weaken CSR performance, implying that CSR commitments are sticky on the upside. Tax cuts enhance CSR performance more for firms with greater tax exposure, tighter financial constraints, better corporate governance, stronger prosocial preferences, or higher risk. Additional analysis of the 2017 federal tax reform substantiates the CSR effect of tax cuts. Overall, our findings highlight essential CSR features and illustrate how corporate tax policy drives corporate sustainability.

Suggested Citation

  • Chang, Xin & Jin, Yaling & Yang, Endong & Zhang, Wenrui, 2025. "Corporate taxes and corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:corfin:v:94:y:2025:i:c:s092911992500077x
    DOI: 10.1016/j.jcorpfin.2025.102809
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    Keywords

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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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