Corporate Governance, Corporate Social Responsibility, and Tax Disclosure by U.S. Multinational Firms

• In Event: Paper Dialogue Session II

Abstract

Alleged tax avoidance by U.S. multinational firms has received increased attention in light of the ballooning size of the U.S. federal deficit. Although efforts to minimize corporate taxes may be viewed as consistent with firms’ fiduciary duties to their shareholders, society and governments provide these same firms with a license to operate. Aggressive tax strategies, although not illegal, may be viewed as violating this social contract and reflecting questionable ethics. This study explores the relationship between the tax disclosures of U.S. multinational firms that have earnings permanently reinvested in foreign subsidiaries and characteristics that reflect the corporate governance and corporate social responsibility (CSR) of these firms. Using CSR data compiled by KLD Research & Analytics, we find that corporate governance concerns are positively associated with our disclosure score. In addition, CSR variables reflecting employee relations strengths and product related concerns are positively associated with our measure of disclosure transparency. Together these results suggest that U.S. multinational firms having corporate governance characteristics or product related issues that might be interpreted in a negative light are more forthcoming about tax disclosures regarding their foreign operations. And, firms with positive CSR performance related to employee relations are also more transparent in regard to these tax disclosures. These results enhance our understanding of the relations among corporate governance, CSR, and taxation.

Authors

• Maef Woods, Heidelberg University

• Angela Banita Andrews, Wayne State University