Corporate Sustainability Worldview and Tax Avoidance

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Table of Contents

Introduction
Aims and Objectives of the Research
Research Questions
Preliminary Review of the Literature
Proposed Methodology
References

Introduction

This proposal introduces the plan of a research project devoted to the association between a company’s adherence to corporate sustainability reporting (CSR) and tax avoidance trends. CSR plays a role of increasing importance in today’s business environment, as it aligns with the values of corporate social responsibility, as well. The latter is a topical concept that derives from the growing realization of the corporate entity’s responsibility in terms of “giving back” to the community that has helped them generate profits and thrive. CSR implies the introduction of a comprehensive mechanism that prompts firms to report their progress in achieving positive social and environmental effects within their framework of operation.

The necessity of such progress is generally acknowledged by the international community as an integral component of the 21^st century business that is expected to be honest and transparent. In other words, the pursuit of financial return should not be executed at the expense of dire social and environmental consequences. Tax avoidance is a vivid example of socially harmful behavior as it directly reduces the company’s contribution to society below due levels. Therefore, it appears relevant to investigate the exact relationship between CSR and tax avoidance in the contemporary business landscape. This topic appears interesting, as it addresses a certain inconsistency within the contemporary domain of business. More specifically, as much as corporate social responsibility and sustainability are discussed, financially dishonest behavior persists. Thus, it is possible that modern companies misinterpret the notion of corporate sustainability as an environmentally-centered one, either deliberately or by ignorance. However, the financial component of corporate sustainability is currently under-reviewed within the body of business and academic literature, making it viable to research the subject matter for this perspective.

Aims and Objectives of the Research

The proposed research aims to identify and describe the relationship between corporate sustainability reporting and tax avoidance tendencies in modern business. For this purpose, the research process implies the completion of a sequence of specific objectives:

Define the concept of corporate social responsibility.
Define and research the concept of corporate sustainability reporting within the framework of corporate social responsibility.
Research the current state of knowledge and best practices with regards to corporate sustainability reporting.
Investigate modern trends in terms of tax avoidance by prominent companies.
Analyze the relationship between a company’s corporate sustainability reporting and tax avoidance tendencies.

Research Questions

In light of the working topic and specified research objectives, it is possible to formulate the central research question as follows: “What is the association between the various worldviews on corporate sustainability reporting and tax avoidance?”. In this regard, the central question can be complemented by additional ones:

What does the concept of corporate social responsibility imply for modern companies?
Why is corporate social responsibility important?
How do business managers perceive corporate social responsibility?
How does corporate sustainability reporting fit into corporate social responsibility?
What measures are implied by the principles of corporate sustainability reporting?
What are the current trends and statistics in terms of corporate tax avoidance?

Simultaneously, the research process is to be driven by its central hypotheses. They represent a synthesis of the key data obtained from an examination of relevant literature. Per this knowledge, corporate sustainability reporting is in line with the tenets of corporate social responsibility, which relies on three pillars: social, environmental, and economic policies (Sharma, 2019). Tax avoidance is directly related to the third aspect, as it implies a voluntary decision to contribute less to community in order to maximize the company’s own profits. This behavior does not align with the fundamental ideas of corporate social responsibility. If anything, socially responsible companies will not seek any solutions that would help them avoid this responsibility. Objectively, sustainability reporting is the most reliable means of acquiring the information regarding a company’s compliance with these principles. Furthermore, Landrum and Ohsowski (2018) identify that reported sustainability may vary from weak to strong levels. In this case, strong corporate sustainability implies that the company acknowledges the three pillars of sustainability without exception. Thus, the key hypothesis is formulated as follows:

H₁ – Stronger corporate sustainability reporting correlates negatively with tax avoidance intentions.

On the other hand, it is possible that research will not yield such findings. In this case, there are two possible outcomes that explain the correlation between strong sustainability reporting and tax avoiding intentions. These outcomes are accounted for as hypotheses H_o and H₂ that are formulated as follows:

H₀ – Stronger corporate sustainability reporting correlates positively with tax avoidance intentions.
H₁ – Stronger corporate sustainability reporting does not correlate with tax avoidance intentions.

Preliminary Review of the Literature

The specified objectives and aims of the proposed research require a rigorous investigation of the contemporary body of literature with regards to the subject matter. It is assumed that a deductive approach to data collection is the optimal way of obtaining relevant information in this case, starting with more general concepts and proceeding with the specialized investigation of the central topic. As far as CSR is concerned, it is necessary to consider it as an element of a greater concept that is corporate social responsibility. This notion is actively discussed within the contemporary informational space as one of the key aspects of the 21^st-century business (Zaman et al., 2020). More specifically, it suggests that the companies that benefit from a certain community are expected to return the favor by making substantial contributions to social, economic, and environmental initiatives of said communities (Sharma, 2019). While the term itself is not a recent invention, it has acquired a special degree of importance within the past years (Latapi Agudelo et al., 2019). By its original design, corporate social responsibility stems from a perception, per which certain organizations exploit the resources of society and the planet for the sake of their own profits.

Such a situation is deemed hazardous, since it risks causing massive consequences in economic, social, and environmental terms. In other words, socially irresponsible corporate practices risk depleting the resources of humanity, rendering it less resilient in the face of emerging challenges (Wickert & Risi, 2019). In light of these hazards, modern firms lay additional emphasis on the principles of socially responsible business, integrating such practices into their strategic development plans. This process is embedded into most aspects of a company, including its decision-making patterns, resource distribution, and organizational structure (Yuan et al., 2020). Meaningful efforts in this area generate positive publicity around the business entity, shortly translating into direct financial returns, as noted by Ali et al. (2020). This way, corporate social responsibility becomes a bilaterally beneficial initiative. This is illustrated by the recent COVID-19 pandemic, which exhibited the advantages of a strong bond between corporate entities and their stakeholders (He and Harris, 2020). Throughout this challenging period, corporate social responsibility guided both parties toward joint efforts that helped them overcome the unprecedented impact of the crisis.

Accordingly, there are tangible implications of responsible corporate behavior. Furthermore, these practices are aimed at ensuring the sustainable development of society, which aligns with the sustainable development goals approved by most nations (Tsalis et al., 2020). While these goals may pose immediate challenges to the firms, a greater emphasis on sustainable practices is likely to yield positive long-term results. In this regard, sustainability reporting has become an increasingly pivotal component of the contemporary business activity. Jadoon et al. (2021) state that it has transcended from a limited initiative to a major descriptor of a business entity’s performance that is valued by investors and stakeholders. While its environmental dimension lacks financial materiality, the social component of sustainability in the form of stakeholder perceptions is sufficiently important. In addition, Oncioiu et al. (2020) suggest that corporate sustainability is measurable aspect. Stakeholders and investors can detect its application merely for the sake of reporting the presence of such policies. In an optimal form, corporate sustainability pursuit should be pro-active, effectively transforming the industry rather than reacting to the observed challenges.

However, companies require a strong impetus that would prompt them to engage in a pro-active sustainability pursuit. This role is partially fulfilled by corporate sustainability reporting, which is a mechanism that allows entities to release public reports with regards to their actual sustainable initiatives (Şahin & Çankaya, 2019). Within this framework, corporate green performance becomes one of the key performance indicators that fall under public scrutiny (Abbas, 2020). In turn, continuous and transparent sustainability reporting is found to have a direct positive impact on the economic performance of a firm (Traxler et al., 2020). As explained in a variety of literary works reviewed, these returns are generated through stronger stakeholder connections, resulting from a better public perception of the company’s work. Most firms have been quick to notice the positive potential of sustainability reporting as an element of corporate social responsibility and in terms of its long-term prospects (Al-Shaer & Hussainey, 2022). This way, it has become an integral component of most business activities across different industries.

However, the majority of corporate sustainability-centered discussions associate the subject matter with environmental issues. Yet, as essential as green initiatives are, the concept of sustainability is not limited to the mitigation of the environmental impact. In its generally adopted understanding, sustainability relies on three pillars, of which the environment is only one with the two remaining ones being society and economy (Landrum & Ohsowski, 2017). Excellence in the green component, combined with major flaws in the social and economic aspects, is insufficiently sustainable or responsible from a corporate point of view. Therefore, tax avoidance is a financial behavior that does not align with the principles of sustainable development (Jarboui et al., 2020). While most of sustainability education programs focus on the environmental component of the agenda, Landrum and Ohsowski (2018) associate financial transparency as a descriptor of higher levels of true sustainability. In other words, there is an opposition between strong and weak sustainability observed by Landrum (2017). In this context, it is possible to hypothesize that the absence of tax avoidance is characteristic of strong, higher levels.

Therefore, if the hypothesis is correct, signs of strong corporate sustainability reporting are expected to correlate negatively with tax avoidance tendencies. As implied by Landrum’s (2017) framework, strong sustainability implies a pro-active position taken by company with regards to the matter at hand. In this case, tax avoidance is not present within a company in the first place. Nevertheless, instances of this financial behavior are still observed today, causing serious damage to the community and impeding the effects of corporate social responsibility (Alsaadi, 2020). Even when firms rely on fairly legitimate avenues of tax burden relief, society is still devoid of the due financial contribution to its sustainable development (Wang et al., 2019). Strong sustainability worldview is expected to prevent such occurrences. Furthermore, even when tax avoidance happens, strong sustainability reporting is found to mitigate the negative perception of the public and stakeholders (Rudyanto & Pirzada, 2021). Similar effects are observed by Gulzar et al. (2018) who confirm the hypothesized association through an empirical study. Overall, the complexity of the reviewed relationship requires additional elaboration within the framework of the proposed study.

Proposed Methodology

In light of the objectives of the study and the current state of the body of research, the proposed project will rely on a qualitative model of methodology. It is an optimal choice for the investigation of emerging phenomena that lack a comprehensive theoretical reference, upon which the specified trends can be viewed through the lens of numerical data. The project will be completed as a systematic review of extant literature, through which the required comprehensive framework will be synthesized, consolidating scarce evidence present within the current body of knowledge.

Furthermore, it will incorporate an integrated case study, in which the specific examples of modern companies will be investigated, analyzed, and compared in terms of the two key variables. The first variable is the level of corporate sustainability that will be analyzed across the strong-weak spectrum. The second variable is the presence of tax avoidance within the operational framework of the firms in question. They will be compared to distinguish and describe the relationship between the two parameters. In order to ensure a comprehensive perspective on the subject matter, the scope of the review is expected to comprise 65 pieces of academic literature and 8 original case studies. With this approach, the research problem will be addressed with due objectivity, ensuring the validity and novelty of the project.

Sample

The proposed project is to utilize a sample of 65 relevant pieces of research published within the past 5 years in the English language. All sources included in the final literature review will be academically appropriate, peer-reviewed, and pertinent to the subject matter. Simultaneously, the case study element of the research will rely on the practical examples of 10 multinational companies from the Fortune 500. This selection is justified by the availability of data and the importance of these companies’ contribution to global sustainability.

Independent Variable

Within the framework of the proposed research project, the independent variable will be the worldview embedded in a company’s corporate sustainability reporting. More specifically, it will be identified on the scale from weak to (very) strong proposed by Landrum and Ohsowski (2018). All data will be obtained and analyzed on the basis of publicly available sustainability reports released by the selected Fortune 500 companies.

Dependent Variable

As per the study proposal, it is planned to explore the relationship between the worldview of corporate sustainability reporting and a company’s tax avoidance intentions. Since the first parameter is to serve as the independent variable in this relationship, the depended variable will be formulated as “tax avoidance intentions”, measured per the organization’s actual tax load as compared to the theoretically due one. This data will be retrieved from the companies’ official financial statements and open legal sources.

References

Abbas, J. (2020). Impact of total quality management on corporate green performance through the mediating role of corporate social responsibility. Journal of Cleaner Production, 242, 118458.

Ali, H. A., Danish, R. Q., & Asrar-ul-Haq, M. (2020). How corporate social responsibility boosts firm financial performance: The mediating role of corporate image and customer satisfaction.Corporate Social Responsibility and Environmental Management, 27(1), 166-177.

Alsaadi, A. (2020). Financial-tax reporting conformity, tax avoidance and corporate social responsibility.Journal of Financial Reporting and Accounting, 18(3), 639-659.

Al-Shaer, H., & Hussainey, K. (2022). Sustainability reporting beyond the business case and its impact on sustainability performance: UK evidence. Journal of Environmental Management, 311, 114883.

Gulzar, M. A., Cherian, J., Sial, M. S., Badulescu, A., Thu, P. A., Badulescu, D., & Khuong, N. V. (2018). Does corporate social responsibility influence corporate tax avoidance of Chinese listed companies?Sustainability, 10(12), 4549.

He, H., & Harris, L. (2020). The impact of Covid-19 pandemic on corporate social responsibility and marketing philosophy.Journal of Business Research, 116, 176-182.

Jadoon, I. A., Ali, A., Ayub, U., Tahir, M., & Mumtaz, R. (2021). The impact of sustainability reporting quality on the value relevance of corporate sustainability performance. Sustainable Development, 29(1), 155-175.

Jarboul, A., Ben Saad, M. K., & Riguen, R. (2020). Tax avoidance: Do board gender diversity and sustainability performance make a difference?Journal of Financial Crime, 27(4), 1389-1408.

Landrum, N. E. (2017). Stages of corporate sustainability: Integrating the strong sustainability worldview.Organization & Environment, 31(4), 287-313.

Landrum, N. E., & Ohsowski, B. (2017). Content trends in sustainable business education: An analysis of introductory courses in the USA. International Journal of Sustainability in Higher Education, 18(3), 385-414.

Landrum, N. E., & Ohsowski, B. (2018). Identifying worldviews on corporate sustainability: A content analysis of corporate sustainability reports. Business Strategy and the Environment, 27(1), 128-151.

Latapi Agudelo, M. A., Jóhannsdóttir, L., & Davídsdóttir, B. (2019). A literature review of the history and evolution of corporate social responsibility. International Journal of Corporate Social Responsibility, 4, 1.

Oncioiu, I., Petrescu, A. G., Bîlcan, F. R., Petrescu, M., Popescu, D. M., & Anghel, E. (2020). Corporate sustainability reporting and financial performance.Sustainability, 12(10), 4297.

Rudyanto, A., & Pirzada, K. (2021). The role of sustainability reporting in shareholder perception of tax avoidance. Social Responsibility Journal, 17(5), 669-685.

Şahin, Z., & Çankaya, F. (2019). The importance of sustainability and sustainability reporting. New Approaches to CSR, Sustainability and Accountability, 1, 45-59.

Sharma, E. (2019). A review of corporate social responsibility in developed and developing nations.Corporate Social Responsibility and Environmental Management, 26(4), 712-720.

Traxler, A. A., Schrack, D., & Greiling, D. (2020). Sustainability reporting and management control – A systematic exploratory literature review. Journal of Cleaner Production, 276, 122725.

Tsalis, T. A., Malamateniou, K. E., Koulouriotis, D., & Nikolaou, I. E. (2020). New challenges for corporate sustainability reporting: United Nations’ 2030 Agenda for sustainable development and the sustainable development goals. Corporate Social Responsibility and Environmental Management, 27(4), 1617-1629.

Wang, F., Xu, S., Sun, J., & Cullinan, C. P. (2020). Corporate tax avoidance: A literature review and research agenda.Journal of Economic Surveys, 34(4), 793-811.

Wickert, C., & Risi, D. (2019). Corporate social responsibility. Cambridge University Press.

Yuan, Y., Lu, L. Y., Tian, G., & Yu, Y. (2020). Business strategy and corporate social responsibility. Journal of Business Ethics, 162, 359-377.

Zaman, R., Jain, T., Samara, G., & Jamali, D. (2019). Corporate governance meets corporate social responsibility: Mapping the interface.Business & Society, 61(3), 690-752.

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