Corporate taxes and corporate social responsibility

Xin Chang, Yaling Jin, Endong Yang and Wenrui Zhang

Journal of Corporate Finance, 2025, vol. 94, issue C

Abstract: Exploiting staggered changes in state-level corporate income taxes, we document that corporate social responsibility (CSR) performance improves substantially following tax cuts, reflecting firms' reliance on internal funds for CSR investments. However, tax increases do not significantly weaken CSR performance, implying that CSR commitments are sticky on the upside. Tax cuts enhance CSR performance more for firms with greater tax exposure, tighter financial constraints, better corporate governance, stronger prosocial preferences, or higher risk. Additional analysis of the 2017 federal tax reform substantiates the CSR effect of tax cuts. Overall, our findings highlight essential CSR features and illustrate how corporate tax policy drives corporate sustainability.

Keywords: Corporate income taxes; Corporate social responsibility (CSR); ESG; Sustainability; Fiscal policy (search for similar items in EconPapers)
JEL-codes: G30 G38 H25 M14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:94:y:2025:i:c:s092911992500077x

DOI: 10.1016/j.jcorpfin.2025.102809

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