How do socially responsible companies engage in tax avoidance practices? Evidence from France

Abstract

Corporate social responsibility (CSR) is part of the larger debate on whether firms engage in CSR to promote social interests or strictly to achieve legitimacy and thus are implicitly involved in some form of greenwashing. This paper investigates the effect of CSR on corporate tax avoidance. It also examines the roles of corporate governance, leverage, and family ownership in the CSR–tax avoidance relationship. Based on a sample of French listed companies from 2005 to 2017, the results show that firms engaging in CSR adopt tax avoidance practices, supporting the risk management and agency theory perspectives. This suggests that firms adopt CSR to forge a positive reputation and hedge risky tax positions. The results also show that the disciplinary roles of debt and corporate governance mitigate this positive effect. Additional evidence shows that family-owned firms overinvesting in CSR are unlikely to engage in tax avoidance for socioeconomic wealth purposes. The results are robust to alternative measures of tax avoidance and endogeneity concerns.