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Corporate social responsibility and tax avoidance: the effect of shareholding structure—evidence from the UK

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Abstract

During their 47th G7 summit in June 2021, the largest economies agreed to combat tax evasion. This paper investigates tax avoidance phenomenon by examining the possible moderation effect of shareholding structure (internal and external shareholdings), as a corporate governance mechanism, on the relationship between corporate social responsibility (CSR) and tax avoidance. Using a sample of FTSE350 non-financial listed firms from 2002 to 2016, I find that institutional shareholding dampens the positive relationship between firms’ social responsibility and tax citizenship. However, the association between corporate social and tax citizenship is magnified for firms with entrenched managerial shareholding. The empirical findings inform tax policymakers and regulators about the need to consider the corporate shareholding structure that magnifies/dampens the tax avoidance risk. Generally, the findings hold for alternative measures of tax avoidance and CSR commitment, two-stage least squares and Tobit regressions, and additional control variables.

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Notes

  1. https://www.bbc.com/news/magazine-20560359, accessed April 25, 2021.

  2. Legitimising firms’ operations could help secure many economic benefits, such as capital inflow, customer loyalty and government support (Laguir et al. 2015).

  3. This range of the unbalanced data set is the incidence of some missing (CSR or shareholding) data.

  4. Corporate tax behaviour literature usually employs the terms tax aggressiveness, tax avoidance, and tax management interchangeably (e.g. Lanis and Richardson 2012; Laguir et al. 2015).

  5. Many past papers have used OLS to test the determinants of tax behaviour (e.g. Landry et al. 2013; Armstrong et al. 2015).

  6. Consistent with past studies, the CSR and shareholding variables are mean-centred to avoid potential collinearity from introducing the interaction variables in our regression modules (Ortas and Gallego-Alvarez, 2020).

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Authors and Affiliations

  1. Department of Accounting and Financial Management, Newcastle Business School, Northumbria University, Newcastle, UK

    Ahmed A. Sarhan

  2. Department of Accounting, Faculty of Commerce, Zagazig University, Zagazig, Egypt

    Ahmed A. Sarhan

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Sarhan, A.A. Corporate social responsibility and tax avoidance: the effect of shareholding structure—evidence from the UK. Int J Discl Gov 21, 1–15 (2024). https://doi.org/10.1057/s41310-023-00172-w

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