Is Corporate Social Responsibility Performance Associated with Tax Avoidance? Roman Lanis • Grant Richardson Received: 6 July 2013 / Accepted: 6 January 2014 / Published online: 18 January 2014 Ó Springer Science+Business Media Dordrecht 2014 Abstract This study examines whether corporate social responsibility performance is associated with corporate tax avoidance. Employing a matched sample of 434 firm-year observations (i.e., 217 tax-avoidant and 217 non-tax- avoidant firm-year observations) from the Kinder, Lyden- berg, and Domini database over the period 2003–2009, our logit regression results show that the higher the level of CSR performance of a firm, the lower the likelihood of tax avoidance. Our results indicate that more socially respon- sible firms are likely to display less tax avoidance. Finally, the results from our additional analysis show that the CSR categories community relations and diversity represent particularly important elements of CSR performance that reduce tax avoidance. Keywords Society  Corporate social responsibility  Tax avoidance Introduction A research topic rarely investigated in the business litera- ture is whether corporate social responsibility performance of a firm influences its level of tax avoidance. 1 While corporate tax policy is generally deemed separate to a firm’s CSR policy, nevertheless, tax avoidance has signif- icantly impacted the social agenda worldwide, especially in this post global financial crisis environment (CTJ 2011; Peters 2011; Duhigg and Kocieniewski 2012). Many would consider tax avoidance to be socially irresponsible (Lan- dolf 2006; Williams 2007; Avi-Yonah 2008; Hasseldine and Morris 2013). Thus, we expect socially responsible firms to be less tax avoidant because we view a firm as a ‘‘real world’’ entity in which CSR is a legitimate business activity and not merely a cost on the road to maximizing shareholder wealth (Avi-Yonah 2008). Our expectation is also consistent with Porter’s view (Porter and Kramer 2006, p. 84) as follows: …The mutual dependence of corporations and soci- ety implies that both business decisions and social policies must follow the principle of shared value. That is, choices must benefit both sides. If either business or a society pursues policies that benefit its interests at the expense of the other, it will find itself on a dangerous path. A temporary gain to one will undermine the long term prosperity of both. The non-agency theory based accounting literature has broadly examined the association between CSR perfor- mance and disclosure (e.g., Roberts 1992; Gray et al. 1995; R. Lanis (&) Accounting Discipline Group, UTS School of Business, University of Technology, Sydney, Corner of Quay Street and Ultimo Road, Haymarket, Sydney, NSW 2000, Australia e-mail: roman.lanis@uts.edu.au G. Richardson Discipline of Accounting and Information System, The Business School, University of Adelaide, 10 Pulteney Street, Adelaide, SA 5005, Australia e-mail: grant.richardson@adelaide.edu.au 1 In line with existing empirical business research (e.g., Rego 2003; Frank et al. 2009; Chen et al. 2010), we define corporate tax avoidance as the downward management of taxable income through tax-planning activities. We specifically define a tax avoidant firm as one that has had a tax dispute involving federal, state, local or non- U.S. government authorities, or was involved in a controversy over its tax obligations which raised public concern during the period (MSCI 2012). Hence, tax avoidance may include tax-planning activities that are legal or that may fall into the gray area. This differentiates tax avoidance from tax evasion which only relates to illegal activities. 123 J Bus Ethics (2015) 127:439–457 DOI 10.1007/s10551-014-2052-8