The dynamic of corporate social responsibility, trust, regulation and tax avoidance / Noorsakinah Abdul Wahab

Noorsakinah , Abdul Wahab (2022) The dynamic of corporate social responsibility, trust, regulation and tax avoidance / Noorsakinah Abdul Wahab. PhD thesis, Universiti Malaya.

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Abstract

The current study investigates the linkage of corporate social responsibility (CSR) and tax avoidance. Previous studies in this area focus on interpreting empirical result as intention of undertaking CSR, whether corporations undertake CSR in good faith or CSR as a means to conceal unethical behaviour, relying on assumption that corporations view tax avoidance as immoral. The current study differs in that it intends to address the issue of corporate ethical behaviour if corporations view paying tax as part of socially responsible act or otherwise. This is done by examining the linkage of CSR decoupling and tax avoidance. CSR decoupling is a concept similar to terminologies such as organizational hypocrisy, organizational facade, CSR faking and green-washing to explain corporate ethical behaviour that involves misalignment between their policies and actions. In addition, the current study investigates if two elements of country-specific characteristics, namely trust in the government and regulation, could have influenced the relationship between CSR decoupling and tax avoidance. Grounded on neo-institutional theory, the current study intends to close the gaps by investigating the relationship of CSR decoupling and tax avoidance in three different dimensions of CSR which are community, employee and environment, following dimensions established by CSRHub. Based on a sample of 52 listed Malaysian corporations for the financial years of 2009 to 2019 using archival method, the findings provide new evidence that overall, CSR and tax are not related, except community CSR because corporations who exaggerate more in CSR disclosure engage less in tax avoidance. Had CSR and tax related for sharing similar morality feature, corporations would have exaggerate through CSR disclosure to commit tax avoidance. The finding also implies that corporations actually do not view avoiding tax as immoral, hence decision to avoid tax is done without having to exaggerate through CSR for any so called need to conceal the immoral behaviour of tax avoidance practice. The finding provides new evidence that corporations incline to use community related CSR to improve CSR disclosure when they decide to engage in tax avoidance. The findings also reveals that trust in the government and regulation do not indirectly affect overall issues on CSR and tax decision at corporate level. However, the finding suggests that with trust in the government, corporations engage more in tax avoidance but exaggerate less through environmental CSR disclosure. The findings lend credence to the belief that the relationship between CSR and tax is not limited solely on the morality feature, but more than that. Decision of CSR and tax at corporate level may be driven by other factors than mere contribution to society. Although the finding concludes the argument in the area of study that overall CSR and tax are not related, however, community related CSR decoupling affects tax avoidance, hence future researchers could further explore this measurement in other economic environment to investigate its impact in different setting. The study provides theoretical and practical implications particularly to future researchers in the area, corporations and the government.

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