Journal of Accounting Review  2026/01
Vol.82   47-89
DOI:10.6552/JOAR.202601_(82).0002

A Study of the Relationship between ESG Performance and Tax Avoidance—Evidence from Mergers and Acquisitions in United States

Abstract

Using U.S. merger data from 2010 to 2021, this study examines the relationship between acquirers’ pre-merger ESG performance and their post-merger tax avoidance, as well as whether ownership structure characteristics moderate this relationship. The empirical findings support the shareholder value maximization view. Acquirers’ overall ESG, environmental, and social scores in the year prior to acquisition are significantly negatively associated with post-merger effective tax rates, suggesting that firms may use strong ESG performance—particularly in more visible environmental and social dimensions—as a form of “reputation insurance” or “moral capital” to mitigate stakeholder scrutiny arising from aggressive tax planning. The negative ESG–tax relationship remains robust after controlling for endogeneity. Insider ownership concentration and institutional ownership show no significant moderating effects. Re-examining S&P 500 firms following Huseynov and Klamm (2012), this study finds that, unlike the 2000–2008 period, where no significant link was observed, ESG-strong large firms between 2010 and 2021 display greater tax responsibility consistent with corporate citizenship behavior. In contrast, non-S&P 500 firms exhibit results similar to the acquisition sample, using ESG performance to mask tax avoidance aimed at maximizing shareholder value.