The Impact of Stakeholder Orientation on Tax Avoidance: Evidence from a Natural Experiment

Abstract

We use a quasi-natural experiment to study the causal impact of stakeholder orientation on corporate tax avoidance. Using a difference-in-differences methodology, we find that greater stakeholder orientation due to the enactment of state constituency statutes, which allow corporations to consider all stakeholders’ interests in decision making, results in increased corporate tax avoidance. Firms with limited financial resources, greater needs for internal funds, and fewer risk-averse stakeholders engage in greater tax avoidance after the adoption of constituency statutes. Our results suggest that policies that promote greater stakeholder orientation may not be effective in prompting more tax payment.