Does CSR have a negative relation with five-year cash ETRs, and positive relation to tax lobbying activities?
The outcome of the research is that the CSR index has a negative relation with fivee-year cash ETRs, and positive relation to tax lobbying activities. Similar results were also found using alternative measures of CSR. Davis et al. conclude that, on average, socially responsible firms do not pay more corporate taxes. The research provides new evidence that high-CSR firms avoid more taxes, as existing research by Hoi et al. find that low-CSR firms avoid more taxes. The key differences between the study between the author and Hoi et al. are the exclusion of corporate governance and the inclusion of firms with an average (over five years) pre-tax profit. Sample composition could also have an impact on the results, firms with low profitability have a different relation between positive CSR activities and tax avoidance than high-profitability firms. The results suggest that in the case of U.S. corporations, the payment of taxes is not viewed as an important socially responsible activity by firms stakeholders. Governments themselves are involved in a trade-off between corporation tax revenue and anticipation of higher employment and tax revenue from foreign direct investment arising from lower corporate tax. Therefore, when trying to increase social welfare and considering this trade-off, policymakers should consider also the results found in this study. Finally, there appears to be a growing trend of public pressure on firms to disclose tax shelter activities, supported by evidence found in the U.K. The research carried out by Davis et al. is only for a short period of time, therefore if this evidence from the U.K represents a growing trend, then public pressure may affect the impact of tax rules on corporate investment decisions and results may differ.