Do the Bad Guys Report? Examining whether CSR Performance Influences the Use of Socially Responsible Tax Disclosures

Abstract

This study explores two possible influences on the decision to voluntarily include socially responsible tax disclosures in corporate social responsibility (CSR) reports: Firms' level of tax avoidance and their performance in another important area of CSR, environmental performance. Using textual analysis and keywords developed for the tax setting, we analyze 2,981 CSR reports from 22 countries, which is the largest sample that has been analyzed in a tax context. We argue that firms use socially responsible tax disclosures to build or repair reputational capital. In line with this assumption, our results suggest that firms employ socially responsible tax disclosures to deflect from poor environmental performance. In this regard, they tend to provide symbolic disclosures, that is, they portray their tax payments as contributions to society. We also find that U.S. firms use these disclosures to window dress their tax avoidance activities, though we do not find evidence of this behavior for the non-US firms.