Corporate social responsibility (CSR): Focus on tax avoidance and financial ratio analysis

Abstract

The propose of this study is to discover the relationship between financial ratio and tax avoidance in firms participating in CSR activities. I adopt quantitative research methodology and use correlation and regression models developed by Kim and Im (2017). Using a sample of 365 Chinese listed firms in the Shanghai and Shenzhen Stock Exchange, I find that engaging in CSR activities discourages tax avoidance behaviors, especially in companies that actively participate in CSR activities. I also find that firms with higher profitability, higher cash flow, and higher sales growth are more likely to participate in tax avoidance. In contrast, firms with high liquidity are less likely to avoid tax. Basing on this study, tax authorities can predict whether a Chinese company will perform tax avoidance activities in future by referring to its financial ratios. Moreover, tax authorities can use corporate social responsibility activities to encourage companies to pay tax.