Corporate Social Responsibility and Profit Shifting

Hasan, Iftekhar and Karavitis, Panagiotis and Kazakis, Pantelis and Leung, Woon Sau (2019): Corporate Social Responsibility and Profit Shifting.

Abstract

In this work we investigate the relationship between corporate social responsibility (CSR) and profit shifting. First, we employ worldwide data for parent firms and their foreign subsidiaries to derive a profit shifting measure. Then, drawing on legitimacy theory and risk-management strategy, we find corporate social responsibility to be positively correlated with profit shifting. In addition, we find this relationship to be stronger in parent firms in countries under the territorial tax system. We perform a battery of sensitivity tests and robustness checks to corroborate our findings. By and large, our results suggest that multinational firms with higher CSR scores shift larger amounts of profits to their low-tax foreign subsidiaries, potentially indicating strategic planning in the choice of CSR investments by multinational enterprises.

• Item Type: MPRA Paper
• Language: English
• Keywords: corporate social responsibility; profit shifting; legitimacy theory; risk-management; corporate tax systems; agency problems
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M14 - Corporate Culture ; Diversity ; Social Responsibility

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