Does CSR Action Provide Insurance-Like Protection to Tax-Avoiding Firms? Evidence from China

Based on a risk management perspective on corporate social responsibility (CSR), this study examines whether firms engaging in tax avoidance can benefit from CSR. We posit that CSR engagement can provide insurance-like protection for firm value by reducing the reputation risk of tax avoidance. Moreover, the extent to which CSR functions as insurance is largely dependent on a firm’s communication strategy. In this study, a fixed-effect panel regression model is applied to examine the moderating effect of CSR engagement and greenwashing on the relationship between tax avoidance and firm value for listed Chinese firms. We find that a greenwashing strategy, i.e., a CSR communication strategy with aggressive symbolic actions and little to no substantive actions, generates negative capital and leads to a negative impact of tax avoidance on firm value. The findings are robust when considering deferred tax expenses and conducting a subgroup analysis. These findings advance our understanding of the relationship between tax avoidance, CSR and financial performance. They also help corporate executives select an effective CSR strategy for risk management purposes.