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Societal trust and corporate tax avoidance

Author

Listed:
  • Kiridaran Kanagaretnam

    (York University)

  • Jimmy Lee

    (Singapore Management University)

  • Chee Yeow Lim

    (Singapore Management University)

  • Gerald Lobo

    (University of Houston)

Abstract

Using an international sample of firms from 25 countries and a country-level index for societal trust, we document that societal trust is negatively associated with tax avoidance, even after controlling for other institutional determinants, such as home country legal institutions and tax system characteristics. We explore the effects of two country-level institutional characteristics—strength of legal institutions and capital market pressure—on the relation between societal trust and tax avoidance. We find that the relation between trust and tax avoidance is less pronounced when the legal institutions in a country are stronger and is more pronounced when the capital market pressure is stronger. Finally, we examine the relation between societal trust and tax evasion, an extreme and illegal form of tax avoidance. We show that societal trust is negatively related to tax evasion and the negative relation is less pronounced when legal institutions are stronger.

Suggested Citation

  • Kiridaran Kanagaretnam & Jimmy Lee & Chee Yeow Lim & Gerald Lobo, 2018. "Societal trust and corporate tax avoidance," Review of Accounting Studies, Springer, vol. 23(4), pages 1588-1628, December.
    • Handle: RePEc:spr:reaccs:v:23:y:2018:i:4:d:10.1007_s11142-018-9466-y
    DOI: 10.1007/s11142-018-9466-y
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    More about this item

    Keywords

    Societal trust; Tax avoidance; Tax evasion; Legal institutions; Capital market pressure;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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