How Does Taxation Affect Corporate Social Responsibility? Evidence from a Korean Tax Reform

Hyejin Park, Jiyoon Lee () and Jewon Shin ()
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Jiyoon Lee: Yonsei University
Jewon Shin: Yonsei University

Journal of Business Ethics, 2024, vol. 192, issue 4, No 6, 745-774

Abstract: Abstract We examine the effects of taxes on Corporate Social Responsibility (CSR). Employing a tax reform in Korea that imposed a new tax on cash retention, we find that treated firms improved CSR performance after the tax reform was enacted. This result is driven by improvement in environmental and social performance. Moreover, the observed improvement is more pronounced in treated firms that face less severe financial constraints, are afforded fewer investment opportunities, feature large foreign ownership stakes, and employ stronger corporate governance mechanisms. The results suggest that tax increases lead to an increase in CSR investment and the magnitude of the increase depends on firm-level characteristics. As such, our results support the tax-strategic view of CSR in a country that has been a latecomer in incorporating CSR practices into business operations.

Keywords: CSR; Tax management; Environmental; Social and Governance (ESG) (search for similar items in EconPapers)
JEL-codes: G30 G32 G38 M14 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10551-023-05536-4

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