Moderated mediation effects of corporate social responsibility performance on tax avoidance: evidence from China

ABSTRACT

Using data of publicly listed Chinese companies practicing corporate social responsibility (CSR) activities between 2009 and 2016, this study empirically examines whether CSR performance has a conditional indirect effect (or moderated mediation effect) on the level of corporate tax avoidance. We find that corporate profitability serves as a full mediator in the association between CSR performance and corporate tax avoidance. CSR performance reduces corporate profitability, and corporate profitability in turn increases the level of corporate tax avoidance. In other words, CSR performance first reduces corporate profitability, and therefore results in lower corporate tax avoidance. Moreover, CSR performance does not significantly moderate the effect of corporate profitability on corporate tax avoidance. Therefore, our results suggest that CSR performance has an indirect, but not a conditional, effect on the level of corporate tax avoidance.

KEYWORDS:

• Corporate social responsibility
• tax avoidance
• profitability
• moderated mediation effect. JEL: M40, M48, M14, H26

Acknowledgments

We thank Yu-Hui Su, Jenn-Shyong Kuo, Wen-Sheng Shieh, Li-Peng Hsiao, and the workshop participants at the 2017 Taiwan Accounting Association Annual Conference and Asian Accounting Association Conference for their helpful comments. We also appreciate the insightful comments and suggestions made by the anonymous reviewers and the editor.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Irresponsible CSR activities include corporate actions widely regarded as damaging to aspects such as corporate governance, employee relations, communities, public health, human rights, diversity, and the environment (Hoi, Wu, and Zhang 2013).

2. The firm profit dummy variable equals 1 if a firm’s ROA is at least 10% (high-profit firms) and 0 otherwise (low-profit firms).

3. The weights are determined based on the relative importance of various social responsibility items. In addition, the weights vary according to the industry to which the company in question belongs.

4. The formula for the original score is ${\sum }_{j=1,2,3,4}^{ }{A}_j{W}_j$, where j is the social responsibility item, A is the score of each social responsibility item, and W is the weight.

5. The adjusted items include CSR awards and major CSR failure events, etc.

6. In contrast to Western countries, whose CSR evaluation institutions are numerous and possess comprehensive data, China’s CSR development is in its preliminary stage. Therefore, China has few CSR evaluation institutions and their data are limited. CASS-CSR research center data are currently China’s most crucial CSR assessment data. Thus, although CASS-CSR research center data are imperfect because of problems such as the short time span between making an application and receiving the rating report, we still use this information for analysis.

7. Besides, we exclude financial, insurance, securities, agriculture, forestry, fishing, animal husbandry, education, comprehensive, and non-industry companies.

8. The mediating effect exists when the following conditions are satisfied: First, the independent variable has a significant effect on the mediator. Second, the independent variable has a significant effect on the dependent variable. Third, when the mediator is controlled, the effect of the independent variable on the dependent variable becomes nonsignificant; Under such conditions, the mediator is called the ‘full mediator.’ However, if the effect of the full mediator is significant but its size is smaller than that of the uncontrolled mediator, it is called the ‘partial mediator.’