How does tax avoidance affect corporate social responsibility and financial ratio in emerging economies?

Abstract

The purpose of this study is to better understand the relationship between financial ratios and tax avoidance in businesses that practice corporate social responsibility. Using a sample of 30 Tunisian financial institutions listed on the stock exchange from 2016 to 2022, we find that engaging in corporate social responsibility activities discourages tax avoidance behavior, particularly in businesses that actively participate in corporate social responsibility activities.

In terms of financial metrics, we see that businesses with higher levels of rentability, cash flow, and sales growth are more likely to engage in tax avoidance. But, businesses with high liquidity are less likely to abandon tax avoidance.

Based on the findings of this study, tax authorities may be able to predict whether a Tunisian company will engage in tax avoidance in the future by looking at its financial statistics. Furthermore, tax authorities may use corporate social responsibility activities to encourage businesses to pay taxes.