Sustainable development, economic policy uncertainty and tax risk

Abstract

Purpose

Unpredictable economic landscapes have led to a continuous escalation in global economic policy uncertainty (EPU). Improving risk management and sustainability in an environment with high macro risk is critical for business development. This study aims to explore the impact of corporate sustainable development on corporate tax risk.

Design/methodology/approach

After using a sample of companies that were A-share listed on the Shanghai and Shenzhen stock exchanges from 2011 to 2021, this paper applies ordinary least squares and a moderate effect model.

Findings

Better environmental, social and governance (ESG) performance can weaken corporate tax risk by improving green innovation capability, reputation and information transparency. Meanwhile, the restraining effect of ESG on tax risk was more significant amid high EPU. These impacts were amplified amid higher market competition, lower tax supervision and a lower degree of corporate digital transformation.

Practical implications

The findings emphasize the need for the government to establish a healthy business and tax environment so that enterprises can improve sustainable development and increase their risk management abilities, especially post-COVID-19.

Social implications

This study guides enterprises and the entirety of society to in paying attention to and promoting ESG practices, which can enhance enterprise tax management.

Originality/value

This study expands the research on the economic consequences of sustainable development and the factors influencing corporate tax risk and EPU.