Do firms manage earnings and avoid tax for corporate social responsibility?

Abstract

This study examines the relationship between corporate tax avoidance (CTA), earnings management (EM) and corporate social responsibility (CSR) within a context of an emerging economy. The study employs system methods of moments (GMM) and logistic regression to establish whether firms in Ghana manage earnings and avoid tax to finance corporate social responsibility. The results show that almost all the firms sampled have engaged in some management of their earnings and tax during the period. The study also find evidence that an increase in CSR activities is associated with an increase in EM, suggesting that, sampled firms may use CSR as a cover for engaging in opportunistic behaviour such as earnings management. By extension, these results have important policy implications for policy makers in assessing the effectiveness of the tax laws.