The effect of corporate social responsibility on earnings management and tax avoidance in Chinese listed companies

Abstract

PurposeThis paper aims to verify the effect of corporate social responsibility (CSR) on Chinese listed firms’ earnings management and tax avoidance. Specifically, this study investigates whether government-guided CSR implementation indeed drives firms to behave in a responsible manner by constraining earnings management and tax avoidance.Design/methodology/approachThe paper analyses a sample of Chinese listed companies that are confronted with the unique situation of CSR being developed at a rapid pace by government-led policy and regulation. The study further investigates whether the effect of CSR on earnings management and tax avoidance is different for state-owned and private enterprises by partitioning the sample into these two subgroups.FindingsThe findings of this study show that government-guided CSR could be effective in reducing the firms’ earnings management and tax avoidance, even though the effect is limited to state-owned enterprises.Originality/valueThis paper provides new evidence on the relation of CSR with earnings management and tax avoidance in the Chinese context and sheds light on the importance of differentiating between the state-owned and private enterprises when studying the corporate behaviors of Chinese firms.