Does social capital matter in corporate decisions? Evidence from corporate tax avoidance

Iftekhar Hasan, Hoi, Chun-Keung (Stan), Qiang Wu and Hao Zhang

No 21/2017, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: We investigate whether the levels of social capital in US counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative associations between social capital and corporate tax avoidance, as captured by effective tax rates and book-tax differences. These results are incremental to the effects of local religiosity and firm culture toward socially-irresponsible activities. They are robust to using organ donation as an alternative social capital proxy and fixed effect regressions. They extend to aggressive tax avoidance practices. Additionally, we provide corroborating evidence using firms with headquarter relocation that changes the exposure to social capital. We conclude that social capital surrounding corporate headquarters provides environmental influences constraining corporate tax avoidance.

JEL-codes: A13 H26 M40 M41 Z13 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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Journal Article: Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2017_021

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