Giving too much and paying too little? The effect of corporate social responsibility on corporate lobbying efficacy: Evidence of tax aggressiveness

Abstract

AbstractThough lobbying accounts for a significant proportion of corporate political expenditure, comprehensive research on its advantages is scarce. Further, research findings have been inconclusive in quantifying political lobbying expenditures' rate of return. Using data from Fortune's America's Most Admired Companies (AMAC) with publicly available financial statements for the period from 2008 to 2017, this study delved into the tax benefits of lobbying using the dynamic panel system GMM and quantile regression model. This study found strong evidence that corporate lobbying is associated with higher levels of tax aggressiveness. The results also show that firms that spend more on lobbying in a given year pay lower effective tax rates. Additionally, this study revealed that the reputational effects of corporate social responsibility lead to the increased effectiveness of corporate lobbying expenditures. Thus, political lobbying affects tax enforcement, resulting in lower tax burdens for politically active firms. These results are consistent with the conjecture that firms with high levels of social responsibility and political lobbying are more tax aggressive. This study has addressed the need to quantify the benefits of lobbying and corporate social responsibility activities, especially in terms of lower tax payments and better financial returns to shareholders while still meeting the needs of non‐owner stakeholders.