Unintended consequences of tax enforcement reform: Evidence from corporate social responsibility report readability

Corporate social responsibility (CSR) disclosures play an increasingly important role in shaping firms’ information environments and investor perceptions, particularly in emerging markets characterized by strong regulatory interventions. This study examines how tax enforcement reforms influence firms’ CSR disclosure strategies. Leveraging the merger of China’s State Tax and Local Tax Bureaus as a quasinatural experiment, we employ a difference-in-differences model to investigate its impact on CSR report readability. Notably, tax enforcement reform is correlated with significantly reduced CSR report readability, indicating that firms may strategically obscure weaker social responsibility performance through less transparent disclosure. Heterogeneity tests indicate that firms with stronger profitability and higher government subsidies face more pronounced shocks. The findings contribute to the literature on tax enforcement and CSR disclosure by demonstrating the unintended nonfinancial consequences of institutional reforms.