Corporate Social Responsibility and Tax Reporting Aggressiveness in a Transition Economy

This paper examines the relationship between corporate social responsibility (CSR) and corporate tax in an environment where we expect this relation to be affected by the degree of market and institutional developments. Taking advantage of substantial cross regional variations in institutions in China, we find that in regions with a lower level of institutional development, firms claiming to act socially responsible engage more in aggressive tax reporting, consistent with the stockholder view of corporate social responsibility (CSR). In contrast, we find that in institutionally stronger regions, corporate social responsibility is more aligned with the social responsibility aspect of tax compliance, which supports the stakeholder view of CSR. Our results suggest that absent institutional infrastructures, CSR as corporate practice risks to become seen as nothing more than window-dressing.