Corporate Social Responsibility, Tax Avoidance, and Earnings Performance

Abstract

ABSTRACT I investigate the influence of pretax earnings performance on the relation between corporate social responsibility (CSR) and tax avoidance. Prior studies of the relation between CSR and tax avoidance find mixed results. Based on slack resource theory (Penrose 1959), I predict and find that the relation between CSR and tax avoidance is moderated by earnings performance. The evidence shows that a lack of social responsibility is positively associated with tax avoidance in firms with low current or future earnings performance, but this effect is diminished when current or future earnings performance is high. There is some evidence that corporate social responsibility is positively associated with tax avoidance when current or future earnings performance is low but, again, the effect disappears when current or future earnings performance is high. Overall, my results suggest that attention to the demands of non-shareholder stakeholders is curtailed when firms face scarce resources.