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How Does Taxation Affect Corporate Social Responsibility? Evidence from a Korean Tax Reform

Author

Listed:
  • Hyejin Park

    (Hanyang University ERICA Campus)

  • Jiyoon Lee

    (Yonsei University)

  • Jewon Shin

    (Yonsei University)

Abstract

We examine the effects of taxes on Corporate Social Responsibility (CSR). Employing a tax reform in Korea that imposed a new tax on cash retention, we find that treated firms improved CSR performance after the tax reform was enacted. This result is driven by improvement in environmental and social performance. Moreover, the observed improvement is more pronounced in treated firms that face less severe financial constraints, are afforded fewer investment opportunities, feature large foreign ownership stakes, and employ stronger corporate governance mechanisms. The results suggest that tax increases lead to an increase in CSR investment and the magnitude of the increase depends on firm-level characteristics. As such, our results support the tax-strategic view of CSR in a country that has been a latecomer in incorporating CSR practices into business operations.

Suggested Citation

  • Hyejin Park & Jiyoon Lee & Jewon Shin, 2024. "How Does Taxation Affect Corporate Social Responsibility? Evidence from a Korean Tax Reform," Journal of Business Ethics, Springer, vol. 192(4), pages 745-774, July.
    • Handle: RePEc:kap:jbuset:v:192:y:2024:i:4:d:10.1007_s10551-023-05536-4
    DOI: 10.1007/s10551-023-05536-4
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    More about this item

    Keywords

    CSR; Tax management; Environmental; Social and Governance (ESG);
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • 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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