Effect of corporate social responsibility on corporate tax avoidance: evidence from a matching approach

The literature provides various theories relating to the relationship between corporate social responsibility (CSR) and tax avoidance. If firms view both CSR activities and tax payments as paths toward contributing to society, CSR and tax avoidance activities exhibit a negative relationship. Conversely, the two activities exhibit a positive relationship if firms engage in CSR for the purpose of risk management. This study examines the effect of CSR on corporate tax avoidance using a matching approach. Three matching algorithms, namely nearest neighbor, radius, and kernel algorithms, are used to match the two groups of firms (CSR and non-CSR firms) in order to correct for sample selection bias. This study adopts Chinese listed firms during 2009–2016 as a research sample. Most empirical results show that CSR firms have higher book-tax differences and lower effective tax rates. This indicates that CSR firms are more aggressive in their tax avoidance. These findings imply that firms engage in CSR activities as a risk management strategy.