Can Paying Taxes Substitute for Corporate Social Responsibility? Evidence from Socially Responsible Investment Funds

51 Pages Posted: 5 Oct 2017 Last revised: 2 Apr 2018

See all articles by Thomas W. Doellman

Thomas W. Doellman

Saint Louis University - Richard A. Chaifetz School of Business

Fariz Huseynov

North Dakota State University - College of Business

Tareque Nasser

Kansas State University

Sabuhi Sardarli

Kansas State University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2018

Abstract

We examine whether corporate tax avoidance impacts the investment decisions of socially responsible investment (SRI) mutual funds. After controlling for corporate social responsibility (CSR) constructs, we find that investment by SRI funds is positively associated with paying corporate taxes. Whereas corporate tax avoidance does not affect SRI fund investment in firms with a strong CSR reputation, greater tax avoidance leads to significantly less SRI fund investment in firms as their CSR reputation weakens. These results hold after accounting for selection bias, controlling for earnings management and managerial entrenchment, and performing several robustness checks. Our findings suggest that socially responsible investors consider corporate tax avoidance an important aspect of CSR and they are consistent with recent findings in the literature that corporate insiders view paying taxes and CSR as substitutes.

Keywords: Tax Avoidance, Corporate Social Responsibility, Socially Responsible Funds, Mutual Funds

JEL Classification: G11, G23, H26

Suggested Citation

Doellman, Thomas W. and Huseynov, Fariz and Nasser, Tareque and Sardarli, Sabuhi, Can Paying Taxes Substitute for Corporate Social Responsibility? Evidence from Socially Responsible Investment Funds (March 28, 2018). Available at SSRN: https://ssrn.com/abstract=3047944 or http://dx.doi.org/10.2139/ssrn.3047944

Thomas W. Doellman

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Fariz Huseynov

North Dakota State University - College of Business ( email )

Department of Acctg, Finance & Information Systems
Fargo, ND 58108
United States
+17012315074 (Phone)

Tareque Nasser (Contact Author)

Kansas State University ( email )

Department of Finance
2097 BB, 1301 Lovers Lane
Manhattan, KS 66506
United States
(785) 532-4375 (Phone)
(785) 532-6822 (Fax)

HOME PAGE: http://https://cba.k-state.edu/faculty-staff/directory/Nasser-Tareque.html

Sabuhi Sardarli

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

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