Corporate Social Responsibility, Tax Avoidance, and Business Groups

[Purpose]The purpose of this paper is to examine the association between corporate social responsibility (CSR) performance and corporate tax avoidance in business groups (called Chaebols in Korea). [Methodology]The samples in this study are selected from a set of non－financial Korean listed firms over the period of 2002－2010. From the full sample, CSR and non－CSR firms are classified using Korea Economic Justice Institute (KEJI) index. [Findings]The result shows that tax avoidance decreases more in CSR firms than in non－CSR firms. Hosever, this negative association is significant not in Chaebol firms but in non－Chaebol firms. These results indicate that tax decision depends on whether or not firms are included in Business groups, so the CSR effect on tax avoidance is different with corporate governance of firms. [Implications]These findings are useful for tax policy makers, managers, and investors to acknowledge that involvement in CSR activities may not be able to limit manager’s opportunistic behavior when firms are heavily ownership concentrated and they are exposed to high agency risk.