Journal of Accounting Review  2020/07
Vol.71   133-182
DOI:10.6552/JOAR.202007_(71).0004

Corporate Social Responsibility and Tax Aggressiveness: The Moderating Effect of Managerial Ownership

Abstract

From the traditional agency theory perspective, managers may hide rent extraction through tax aggressiveness and social responsibility activities. Existing theories propose that greater managerial ownership generates greater alignment of the interests of managers and shareholders and thus reduces the agency costs. On the other hand, increasing managerial ownership may entrench managers, causing agency conflicts between the controlling owner who is also the manager and minority shareholders. Using a sample of Taiwanese listed companies from 2010 to 2016, this study investigates whether socially responsible firms are less or more tax aggressive, and whether this relationship will be impacted by managerial ownership. This study finds that firms with high CSR have higher effective tax rates, supporting the stakeholder theory. In addition, this study finds that firms with higher managerial ownership are less tax aggressive, consistent with the alignment effect argument. This study finds only limited evidence that managerial ownership has a moderating effect on the negative relation between CSR and tax aggressiveness. However, when managers own a significant equity ownership, this study finds no evidence that managerial ownership moderates the negative relationship between CSR and tax aggressiveness. This suggests that owner-managers might increase CSR activities to mask their rent extraction through tax aggressive activities.