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It is complicated: Tax havens, corporate social responsibility, and corporate social irresponsibility

Author

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  • Linda H. Chen
  • Jeffrey J. Bailey
  • Weiwei Wang
  • Debra L. Sanders

Abstract

This study provided an empirical investigation into the interplay between tax haven engagement, corporate social responsibility (CSR), and corporate social irresponsibility (CSI), offering a nuanced understanding of how firms navigate the tension between financial optimization and societal expectations. Analyzing U.S. multinational corporations from 1995 to 2019 by disaggregating KLD scores to measure CSR and CSI dimensions and identifying tax haven activities based on subsidiaries located in jurisdictions classified by established tax haven lists, we document a significant positive association between aggregate CSR measures and tax haven engagement, and, importantly, we show that both CSR strengths (such as community, diversity, and environmental initiatives) and CSI weaknesses (notably in labor relations and environmental concerns) are independently linked to greater use of tax havens. These results suggest that firms may strategically leverage both positive and negative CSR dimensions to manage reputational risks while pursuing aggressive tax strategies. By highlighting the role of CSR as both an ethical commitment and a reputational tool, our study challenges the conventional view of CSR as inherently oppositional to tax avoidance. The research contributed to the literature by unpacking the complex, sometimes contradictory, relationship between CSR, CSI, and tax planning, and underscores the need for integrated regulatory approaches that align corporate transparency, ethical branding, and financial performance.

Suggested Citation

  • Linda H. Chen & Jeffrey J. Bailey & Weiwei Wang & Debra L. Sanders, 2026. "It is complicated: Tax havens, corporate social responsibility, and corporate social irresponsibility," Review of Financial Economics, John Wiley & Sons, vol. 44(1), January.
    • Handle: RePEc:wly:revfec:v:44:y:2026:i:1:n:e70023
    DOI: 10.1002/rfe.70023
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