Sustainability Performance and Tax Avoidance – Disentangling the Effects of Operational and Management Sustainability Performance

Abstract

This paper provides an explanation for the previously mixed findings on the relationship between corporate sustainability performance (CSP) and corporate tax avoidance by disentangling sustainability performance into operational and management sustainability performance. The results from multivariate regression analyses for a sample of 4,449 U.S. firm-year observations reveal a positive relationship between management sustainability performance and tax avoidance and a negative relationship between operational sustainability performance and tax avoidance. The results are robust across the environmental and social dimensions of sustainability and various measures of tax avoidance. Overall, the study provides novel insights into the association between CSP and corporate tax avoidance.

Keywords: operational sustainability performance, management sustainability performance, tax avoidance, effective tax rate, discretionary permanent book-tax differences

JEL Classification: M14, M41, H20