Corporate tax avoidance and firm value: The moderating role of environmental, social, and governance (ESG) ratings

Elamer A. A., Boulhaga M., Ibrahim B. A.

BUSINESS STRATEGY AND THE ENVIRONMENT, 2024 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Publication Date: 2024
  • Doi Number: 10.1002/bse.3881
  • Journal Name: BUSINESS STRATEGY AND THE ENVIRONMENT
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, ABI/INFORM, Aerospace Database, Agricultural & Environmental Science Database, Business Source Elite, Business Source Premier, Communication Abstracts, Environment Index, Geobase, Greenfile, INSPEC, Metadex, Pollution Abstracts, Psycinfo, Public Affairs Index, Civil Engineering Abstracts
  • Azerbaijan State University of Economics (UNEC) Affiliated: No

Abstract

In this study, we examine how managers in firms that have practiced tax avoidance strategically use sustainability activities together with their tax avoidance practices. More specifically, we investigate the moderating impact of ESG on the association between tax avoidance and firm value. Using a sample of French-listed companies during the years 2012-2021, we hypothesized and found that ESG rating negatively and significantly moderates the relationship between corporate tax avoidance and firm market valuation. Overall, our results suggest that investors reward firms for good ESG performance, perceiving such companies as more valuable. However, when these firms engage in higher tax liabilities, the positive effect of ESG on firm value is slightly reduced. This nuanced insight highlights the importance of considering how tax strategies interact with ESG initiatives in shaping overall firm value. This study, thus, provides theoretical and practical consequences that will encourage businesses and politicians to promote sustainable development. Our findings remain robust to an array of tests, including a number of different tax avoidance measures and potential endogeneity problems.