The real effect of mandatory CSR disclosure: Evidence of corporate tax avoidance

In practice, mandatory corporate social responsibility (CSR) disclosure can lead to lower profitability and increased corporate cost burdens. In this research, we endeavor to examine how companies navigate the adverse effects of mandatory CSR disclosure from the perspective of corporate tax avoidance. Using data from Chinese listed firms, we examine the effect of mandatory CSR disclosure on corporate tax avoidance, applying propensity score matching and difference-in-differences methods. The results indicate that the implementation of mandatory CSR disclosure leads to a significant increase in corporate tax avoidance. The findings are robust to a battery of tests and are more prominent for firms with weaker profitability and cost transferability, and those that are more likely to be affected by the disclosure mandate (i.e., polluting firms, firms with weak social responsibility, firms in high disclosure regions, and firms in high minimum wage regions). In summary, our findings are consistent with the view that mandatory CSR disclosure alters corporate behavior and creates positive externalities for society at the expense of tax payments to the government.