Starbucks and media allegations of tax avoidance

Abstract

This chapter examines the effect of media reports on tax avoidance in the UK using Starbucks as a case study. Specifically, we investigated the reputational loss Starbucks suffered in terms of share returns and public opinion after the first report by Reuters on its alleged tax avoidance practice. We find that Starbucks suffered a negative share return of 7.7%, equivalent to $2.7 billion, over the four-day period after the first media report on its tax avoidance. Criticism from the government, customers, and other media soon followed the Reuters report, causing further reputational loss affecting other stakeholders. Using stakeholder theory, we contribute to the literature on corporate tax avoidance by identifying the effect of media on reputational loss for a firm that engages in tax avoidance and on subsequent tax compliance behaviour. Our findings also have a practical implication in that media reports can act as a means of changing tax avoidance behaviour, which may be useful to tax authorities.