Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance

We investigate whether the levels of social capital in U.S. counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative assoc...

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Bibliographic Details
Published inJournal of accounting research Vol. 55; no. 3; pp. 629 - 668
Main Authors HASAN, IFTEKHAR, HOI, CHUN-KEUNG (STAN), WU, QIANG, ZHANG, HAO
Format Journal Article
LanguageEnglish
Published Chicago Wiley Subscription Services, Inc 01.06.2017
Blackwell Publishing Ltd
Subjects
A13
Biological organs
Blood & organ donations
Corporate taxes
Density
Donations
Donors
Environmental aspects
H26
Head offices
M40
M41
Religiosity
Relocation
Social capital
social network
Social networks
social norm
tax aggressiveness
Tax avoidance
Tax rates
Taxation
Z13
United States > US
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Summary:We investigate whether the levels of social capital in U.S. counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative associations between social capital and corporate tax avoidance, as captured by effective tax rates and book-tax differences. These results are incremental to the effects of local religiosity and firm culture toward socially irresponsible activities. They are robust to using organ donation as an alternative social capital proxy and fixed effect regressions. They extend to aggressive tax avoidance practices. Additionally, we provide corroborating evidence using firms with headquarters relocation that changes the exposure to social capital. We conclude that social capital surrounding corporate headquarters provides environmental influences constraining corporate tax avoidance.
Bibliography:http://research.chicagobooth.edu/arc/journal-of-accounting-research/online-supplements
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Accepted by Christian Leuz. We thank the editor and an anonymous referee for insightful comments. The authors are grateful for helpful comments from participants of research workshops at Rochester Institute of Technology, Fordham University, University of Cincinnati, University of Nebraska, University of St. Andrews, Rensselaer Polytechnic Institute, and the U.S. Securities and Exchange Commission. We thank Patrick Scanlon for editorial help. Hoi and Zhang thank the Saunders College of Business at RIT for research support through summer awards and Zutes Faculty Fellowships. An online appendix to this paper can be downloaded at
ISSN:0021-8456
1475-679X
DOI:10.1111/1475-679X.12159