Journal of Cleaner Production 107 (2015) 662e675

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Does corporate social responsibility affect corporate tax

aggressiveness?

a, *, Jamal Elbaz b
Issam Laguir a, Raffaele Stagliano
a
Montpellier Business School, Montpellier Research in Management (MRM), Montpellier, 2300 Avenue des Moulins, 34185, Montpellier, France
b
Ecole Sup
erieure de Technologie (EST) d'Agadir, Ibn Zohr University, Rue Oued Ziz, Agadir, Morocco

a r t i c l e i n f o a b s t r a c t

Article history: Recent years have seen a considerable increase in the literature concerning the separate areas of
Received 6 November 2014 corporate social responsibility and corporate tax aggressiveness. However, comparatively little scholarly
Received in revised form attention has been paid to the link between the two. This paper examines how the different activities of
23 April 2015
corporate social responsibility affect corporate tax aggressiveness. A structural model was tested using
Accepted 15 May 2015
Available online 10 June 2015
partial least squares regression to determine whether the relationships between corporate social re-
sponsibility dimensions and tax aggressiveness are positive or negative. Based on a sample of French
publicly listed firms, the results indicate that a firm's tax aggressiveness depends on the nature of its
Keywords:
Corporate social responsibility
corporate social responsibility activities. Notably, the study demonstrates that greater the activity in the
Tax aggressiveness social dimension of corporate social responsibility, the lower the level of corporate tax aggressiveness
Shareholders will be, whereas high activity in the economic dimension is associated with a high level of tax aggres-
Stakeholders siveness. These results extend the prior literature concerning the relationship between corporate social
PLS-SEM responsibility and tax aggressiveness and suggest that the nature of the relationship, whether negative
or positive, tends to differ across the corporate social responsibility dimensions. Overall, the study
provides unique insight into the association between CSR activities and corporate tax aggressiveness.
Indeed, the paper strongly supports the current literature and argues that the dimensions of corporate
social responsibility should not be aggregated into a single measure because interesting and explanatory
information is lost when such a method is used, especially with regard to an issue like corporate tax
aggressiveness.
© 2015 Elsevier Ltd. All rights reserved.

1. Introduction
In the past decade, academic researchers and professionals alike
have given particular attention to both corporate tax aggressive-
ness and corporate social responsibility (CSR) (e.g., Chen et al.,
2010; Desai and Dharmapala, 2006; Lanis and Richardson, 2012).
However, despite the growing number of studies in the separate
areas of tax aggressiveness and CSR, few studies have examined the
link between them and those that have offered contradictory re-
sults (e.g., Hanlon and Heitzman, 2010; Landry et al., 2013; Lanis
and Richardson, 2015). The goal of tax aggressive policies is to
reduce corporate taxes (e.g., Chen et al., 2010; Frank et al., 2009;
* Corresponding author. Montpellier Business School and Montpellier Research
in Management, 2300 Avenue des Moulins, 34185 Montpellier Cedex 4, France.
Tel.: þ33 (0)467102695; fax: þ33 (0)467455650.

).
E-mail address: r.stagliano@montpellier-bs.com (R. Stagliano
Lanis and Richardson, 2012). In this paper, and in line with exist-
ing empirical tax research (e.g., Lanis and Richardson, 2012), tax
aggressiveness is defined as encompassing all tax planning activ-
ities, whether legal, illegal, or falling into the gray area. Tax
aggressiveness, therefore, does not imply improper activity.
Moreover, it should be noted that the terms tax aggressiveness, tax
avoidance, and tax management can be used interchangeably (e.g.,
Chen et al., 2010; Lanis and Richardson, 2012).
Studies have shown that tax aggressiveness can reduce corpo-
rate costs and increase shareholder wealth (e.g., Hanlon and
Heitzman, 2010). Thus, to determine just how aggressive they
should be, firms need to trade off the marginal benefits of man-
aging taxes against the marginal costs of doing so (Chen et al.,
2010). One of the marginal benefits is greater tax savings,
whereas the marginal costs include the potential penalties imposed
by tax administrations, implementation costs (time/effort and
transaction costs of implementing tax transactions), and the agency
costs that inevitably accompany tax aggressive activities. Other

http://dx.doi.org/10.1016/j.jclepro.2015.05.059
0959-6526/© 2015 Elsevier Ltd. All rights reserved.
 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675
studies suggest that firms that use tax shelters are socially irre-
sponsible (Lanis and Richardson, 2012), as the payment of corpo-
rate taxes helps ensure the financing of public goods. Thus, a
corporation's tax aggressive policies may have a negative effect on
society (Freedman, 2003). Under any of the above conditions, tax
decisions are indicative of firm characteristics or management
behavior.
Previous studies show that CSR policies have an impact on firm
decisions (Windsor, 2009) and firm performance (Agudo Valiente
et al., 2012). However, despite the substantial contributions to the
literature in recent decades, there is no consensual definition of CSR
(Van Marrewijk, 2003), one reason being that the concept of CSR
has undergone many stages of evolution. The European
Commission (2011) nevertheless defined CSR as “actions by com-
panies over and above their legal obligations towards society and
the environment. Certain regulatory measures create an environ-
ment more conducive to enterprises voluntarily meeting their so-
cial responsibility” (2011, p. 3).
From the traditional agency theory perspective, “engaging in
CSR is symptomatic of an agency problem or a conflict between the
interests of managers and shareholders” (McWilliams and Siegel,
2001, p 118). Indeed, it is assumed that managers use CSR as a
means to further their own social, political, or career agendas at the
expense of shareholders. From this perspective, a firm implements
CSR activities only if they seem to be a means to desirable profit
maximization. Carroll and Joulfaian (2005), Preuss (2010) and Sikka
(2010) note that some firms claiming to be socially responsible are
also engaged in tax aggressive activities. The balance between so-
cietal goals and economic concerns in this case is thus only based
on stockholder wealth maximization.
The agency theory interpretation has been challenged by other
researchers who consider that a firm is more than simply a nexus of
contracts, where the firm is managed to maximize shareholder
value, and that stakeholders other than shareholders are also
important to the firm's operations (e.g., Hill and Jones, 1992). Thus,
according to the corporate social responsibility stream of theories
(particularly legitimacy and stakeholder theories), there is an im-
plicit “social contract” between the corporation and society, the
terms of which are derived from the expectations of a number of
groups. From this perspective, a firm exists above and beyond
management, shareholders and any particular stakeholder (e.g.,
Carroll, 1979; Waddock and Graves, 1997; Wood, 1991). In addition,
corporate social responsibility theory proposes that, in seeking to
discharge their social responsibilities and gain legitimacy within
society, corporations should be less tax aggressive (Lanis and
Richardson, 2011).
In sum, CSR is a key factor that influences firm performance.
Moreover, CSR is likely to have an influence on tax aggressive ac-
tivities and should, on this basis, be considered a key factor in the
success and survival of a corporation.
Most previous studies have used a unidimensional (aggregated)
measure of CSR (Johnson and Greening, 1999). However, recent
research has cast doubt on this use (Hoi et al., 2013; Huseynov and
Klamm, 2012; Lanis and Richardson, 2012) because a unidimen-
sional measure may confound the effects of the individual CSR di-
mensions, which are not equally important or relevant (Johnson
and Greening, 1999). This strongly suggests the need to consider
the individual dimensions of CSR separately (Hillman and Keim,
2001; Rehbein et al., 2004). This study draws on the work of
Johnson and Greening (1999) and expands on it by introducing the
multidimensional CSR perceptions of Dahlsrud (2008) and Girerd-
Potin et al. (2014). Specifically, social, governance, economic and
environmental dimensions are used as proxy measures of the
extent to which a corporation engages in CSR activities. Further-
more, effective tax rates (ETRs) (e.g., Gupta and Newberry, 1997;
663
Lanis and Richardson, 2012; Rego, 2003) are used as a proxy
measure of corporate tax aggressiveness.
Given the sparse research on the effect of CSR components on
tax aggressiveness, the authors examine the role of CSR on tax
planning activities. Thus, this study addresses the following ques-
tion: Do the various dimensions of corporate social responsibility
affect the tax aggressiveness of a firm? More especially, the study
examines whether the relationship between corporate social re-
sponsibility and corporate tax aggressiveness depends on the di-
mensions of CSR. To date, most research on this topic has been
conducted in the U.S. context (e.g., Hoi et al., 2013) and in the
Australian market (e.g., Lanis and Richardson, 2013), but the extent
to which these findings and their explanations hold in other
countries has been largely unexplored.
This study contributes to the literature in several ways. First, it
provides empirical evidence that firms are more or less likely to
engage in tax aggressiveness depending on the CSR dimensions
they have developed. To the authors' knowledge, this paper is one
of the very few studies that link CSR dimensions and tax aggres-
siveness and is the first to address this issue in the French context.
Second, it provides insight for policymakers into the conditions
under which the risk of corporate tax aggressiveness is higher.
Third, it can be of value to economic development specialists, in-
vestors, and business consultants seeking to identify the circum-
stances under which a firm's CSR activities can be used for tax
aggressive purposes. Finally, it provides evidence in support of an
emerging research paradigm in the area of CSR and tax aggres-
siveness, as these two areas have yet to be examined together
(Carroll and Joulfaian, 2005; Hanlon and Heitzman, 2010; Moser
and Martin, 2012).
The remainder of the paper contains four sections: the next
section provides an overview of the extant literature on the re-
lationships between CSR and tax aggressiveness and it develops the
theoretical model, including a presentation of the hypotheses. The
research method, including sample selection and variable mea-
surement, is then presented. This is followed by the presentation of
the results and additional tests. The final section discusses the re-
sults and presents the paper's conclusions.
2. Literature review and hypotheses
According to agency theory, a company can be defined as a
contract-agent between shareholders and managers, with the firm
being guided by a single objective function: shareholder wealth
creation (Jensen and Meckling, 1976). From this perspective, social
welfare is maximized when all firms in an economy maximize total
firm value. Critics have long argued that firm investment in socially
responsible but unprofitable ventures will ultimately lead to the
demise of the firm, at worst, and to unsustainable support to
nonprofit organizations, at best (Murray and Montanari, 1986).
Furthermore, “Friedman (1970) asserts that engaging in CSR is
symptomatic of an agency problem or a conflict between the in-
terests of managers and shareholders” (McWilliams and Siegel,
2001, p 118). He argues that managers use CSR as a means to pro-
mote their own interests at the expense of shareholders. Hence,
shareholders can limit divergence from their interests by defining
appropriate incentives for the managers (McWilliams and Siegel,
2001). The only corporate objective is, therefore, to maximize
shareholder wealth, and social and environmental issues are
merely constraints a firm has to integrate into its financial objective
function (Friedman, 1970). In line with this objective, a company
will implement CSR actions only if they allow profit maximization.
In agency theory, the costs of such activities are usually referred to
as reputation costs and/or political costs (Chen et al., 2010). The
tradeoff between societal goals and economic concerns is,
664 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675
therefore, always driven by the fundamental need to maximize
shareholder wealth. Corporate taxes can only be associated with
CSR if their payment has implications for the wider society. Indeed,
tax aggressiveness might result in significant negative sanctions for
and judgments of firms because they are costly to society and firms
are likely to engage in opportunistic behavior that runs contrary to
societal interests. Thus, CSR could increase shareholder value
because it allows shareholders to be protected against the negative
effects of tax aggressiveness. The empirical results of Hoi et al.
(2013) suggest that firms will increase CSR activities to build up
their CSR reputation and thereby lessen the severity of the potential
negative sanctions associated with undertaking aggressive tax
planning activities. Furthermore, Williams (2007) notes that the
most significant issue that arises in attempting to apply CSR prin-
ciples to firm taxation encompasses those actions that can reduce a
corporation's tax liability through corporate tax aggressiveness.
It is nevertheless simplistic to assume that tax aggressive ac-
tivities always lead to firm value maximization because there are
potential costs to being tax aggressive, including non-tax costs
arising from managers' concealed actions (Chen et al., 2010). Desai
and Dharmapala (2006) and Laguir and Stagliano
(2014) highlight
the observation that managers may hide rent extraction through
tax aggressiveness when the two actions are complementary. This,
however, is likely to create significant agency costs for share-
holders, who in turn would be tempted to impose a price discount
on the corporation's share price.
The agency theory perspective has been challenged by other
researchers who outline a CSR framework. From the stakeholder-
oriented perspective, Freeman and Reed (1983) argue that corpo-
rations should attempt to satisfy all their stakeholders, even though
their primary mandate is to maximize value for shareholders. These
scholars were the first to clearly identify the strategic importance of
groups and individuals beyond the firm's stockholders. They
pointed to such widely disparate groups as local community or-
ganizations, environmentalists, consumer advocates, governments,
special interest groups, and even competitors and the media as
legitimate stakeholders. Moreover, Freeman and Reed (1983)
warned that if these stakeholders were to withdraw their re-
sources, they might endanger the very existence of the firm. The
scholars therefore emphasized the importance of efficient stake-
holder management as a means to ensure continued support and,
ultimately, the achievement of corporate objectives. Shareholder
value thus has become one corporate objective among others (Hill
and Jones, 1992; Meiseberg and Ehrmann, 2012) and corporate
choices are based on both social and economic calculations.
Compared with stakeholder theory, legitimacy theory appears
to be less tied to the assumption of discrete and identifiable
stakeholder actions. According to Suchman (1995), legitimacy is a
state in which an organization's actions are observed to be “…
desirable, proper or appropriate within some socially constructed
system of norms, values, beliefs and definitions” (1995, p. 574).
Thus, firms will try to build and maintain relationships within their
social and political environment, seeking the legitimacy they need
to survive regardless of how well they perform financially (Gray
et al., 1995). Legitimacy theory assumes that an organization is
defined in part by its ability to engage in and control the processes
of legitimization in order to demonstrate its congruence with so-
cietal values (e.g., Guthrie and Parker, 1989). Indeed, with the
growth in community awareness and concerns over the past few
decades, firms today are expected to take action to ensure that their
overall performance is acceptable to the community (Wilmshurst
and Frost, 2000). Moreover, legitimacy can be observed as an
operational resource (Suchman, 1995) whose value must be
maintained to ensure continued support from society. The latter is
expressed, for example, in terms of increased capital inflows,
customer and supplier appreciation, labor participation, govern-
ment “blessing,” and community (and media) acceptance when the
company acts as a good and environmentally friendly “corporate
citizen.” Avi-Yonah (2008) states that the implication of viewing a
corporation as a “real world” entity is that CSR may be regarded as a
legitimate business activity and not merely a cost on the road to
maximizing shareholder wealth. However, any perception of a
mismatch between organizational activities and societal values will
lead to a legitimacy gap (Haniffa and Cooke, 2005), which in turn
may well threaten the organization's status within the broader
social system. For example, if a firm implements a strategy with the
sole or dominant aim of avoiding taxation, the general consensus is
that it is not paying its “fair share” of tax to the government to
ensure the financing of public goods (Freedman, 2003; Williams,
2007). The loss in corporate income tax revenue is likely to
arouse hostility, cause reputational damage and, in the worst case
scenario, result in the cessation of the firm's business operations
(Lanis and Richardson, 2011; Williams, 2007). Moreover, aggressive
tax avoidance practices can be viewed as opportunistic behaviors
whereby the firm exploits the implicit contract between the firm
and society at the expense of the latter. It follows that aggressive
tax avoidance should be inconsistent with CSR (Hoi et al., 2013).
The measurement and assessment of CSR builds upon the axiom
that “what gets measured, gets managed” (Asif et al., 2013, p.10). As
noted earlier, a unidimensional measure of CSR may confound the
effects of the individual CSR dimensions. In fact, some dimensions
of CSR may be more important than others in explaining corporate
decisions about tax aggressive activities (e.g., Hoi et al., 2013; Lanis
and Richardson, 2012). Indeed, Johnson and Greening (1999) sug-
gest that “combining all of the corporate social performance di-
mensions into one construct is inappropriate as there appear to be
at least two, conceptually distinct, dimensions; (1) a community,
women, minorities, and employee relations dimension and (2) a
product quality and environment dimension” (1999, p.565). These
authors emphasize that the community, women, minorities, and
employee relations group (social dimension) is related to the con-
tributions firms make to communities, to their hiring of women
and minorities, and to their treatment of employees, whereas the
product quality and environmental dimension (product quality
dimension) is related to product and service quality and to a firm's
stance toward the natural environment. For Johnson and Greening
(1999), product quality and environmentally sound manufacturing
are, in effect, two attributes of producing a product. This emphasis
on environmentally conscious manufacturing effectively links
these two types of corporate social performance. Additionally,
Johnson and Greening's (1999) typology is consistent with the
environmental, social, and corporate governance (ESG) perspective,
where all concerns related to mankind belong to the “social”
dimension because it implies “people”; all concerns related to the
natural environment and product and service quality belong to the
“environmental” dimension because it implies “product quality”;
and all societal concerns that can portray the sustainable perfor-
mance of a company belong to the “governance” dimension
(Kocmanova and Simberova, 2012). In their recent research, Girerd-
Potin et al. (2014) highlighted the broad consensus about the ESG
classification.
However, recent studies (e.g., Dahlsrud, 2008) have extended
Johnson and Greening's (1999) typology by arguing that the natural
environment and product and service quality attributes should be
analyzed separately as two distinct dimensions of CSR, i.e., the
environmental dimension and an economic dimension. Indeed,
Van Marrewijk (2003) pointed out that CSR can be considered as an
intermediate stage where companies try to balance the triple bot-
tom line (economic, environmental, and social aspects) to reach the
ultimate goal of corporate sustainability (CS), further arguing that
 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675 665

the three aspects of CS can be translated into a CSR approach that control variables from the CSR and tax aggressiveness literature are
companies need to take into account, as the CSR approach often included in the model to control for other effects. These include
advocates ethical behavior with respect to them (Hutchins and corporation size, financial performance, leverage, capital intensity,
Sutherland, 2008). Lozano (2011, 2015) and Lozano and Huisingh intangibles and activity sector.
(2011) explained that CS should be understood as those firm ac- Taking into account the agency and corporate social re-
tivities that proactively aim to reach sustainability equilibria within sponsibility theories, the study tests the following hypotheses:
the economic, environmental, and social dimensions of today, as
H1. The level of the CSR social dimension of a firm significantly in-
well as their inter-relations within and throughout the time
fluences the level of its tax aggressiveness.
dimension (Lozano, 2008), while also taking into account the
company's systems and stakeholders. From this perspective, H2. The level of the CSR governance dimension of a firm significantly
Dahlsrud (2008) explains that CSR should be understood through influences the level of its tax aggressiveness.
the social, environmental and economic dimensions, which are
H3. The level of the CSR economic dimension of a firm significantly
“merely different categories of impacts from business” (2008, p.6),
influences the level of its tax aggressiveness.
and argues that such a distinction is useful since different sets of
tools have to be used when analyzing and managing the social, H4. The level of the CSR environmental dimension of a firm signifi-
environmental and economic impacts from business. cantly influences the level of its tax aggressiveness.
Thus, the economic dimension of CSR is the means by which The theoretical model shown in Fig. 1 summarizes these
firms deal with concerns that might arise in their interactions with hypotheses.
customers, suppliers and shareholders in the marketplace
(European Commission, 2003). The business behavior in the
marketplace is considered as an indicator of how well they have 3. Research method
integrated economic responsibility issues into their mainstream
organizational structure and decision-making process. The aim of This section provides information regarding the sample, the
such integration is seen as going beyond short-term profit maxi- variable measurement, and the research method, which will allow
mizing to encompass long-term economic performance and con- an examination of the link between tax aggressiveness and CSR
tributions to the well-being of all of society (e.g., Bansal, 2005). dimensions.
Furthermore, the economic dimension of CSR takes into account
shared value creation through the development of innovative
3.1. Data
products, services and business models that lead to higher product
quality and more productive jobs.
The sample was drawn from the Vigeo database for French firms
The environmental dimension of CSR draws on the idea that
for the 2003-2011 period, which was the latest and most complete
environmental degradation should be de-coupled from economic
financial period available for data collection at the time this study
growth (Commission of the European Communities, 2001). This
was carried out. Vigeo has established itself as the leading Euro-
dimension often focuses on the adoption of management systems
pean expert in the assessment of companies and organizations with
to systematically manage the environmental impacts of a business
regard to their practices and performance on environmental, social,
along the entire product life cycle, thus building a firm's credibility
and governance (ESG) issues. It assesses the degree to which
with external stakeholders and ensuring that the principle of
companies and public corporations take into account environ-
environmental integrity and protection is embraced by internal
mental, social, and corporate governance objectives, all of which
stakeholders (Kovacs, 2008; Walley and Whitehead, 1994).
constitute both risk factors and business opportunities in the
The social dimension of CSR acknowledges ‘‘the health, safety
definition and implementation of their strategies and policies. The
and general well-being of employees; motivate[s] the workforce by
Vigeo data were supplemented with firm-level operational and
offering training and development opportunities; and enable[s]
performance data from the Diane financial database. Diane is one of
firms to act as good citizens in the local community’’ (European
the Bureau van Dijk Electronic Publishing's databases. The final
Commission, 2003, p.5). This dimension also involves creating a
sample comprised 83 firm-year observations from 24 listed firms
formal social dialogue to take into account stakeholders' interests
after excluding all firms that could be classified as follows (e.g.,
in the decision-making process (Bansal, 2005).
Gupta and Newberry, 1997; Lanis and Richardson, 2012):
Finally, the governance dimension of CSR draws on the
assumption that the CSR perspective on business performance is
(1) Financial corporations, as their ETRs are likely to differ from
best expressed by considering the voice of multiple stakeholders
those of other corporations because of government
(Lozano, 2005). Thus, CSR and corporate governance belong to the
regulations;
same corporate accountability continuum promoting sustainability,
(2) Foreign corporations, as they may be subject to resident
growth, and stakeholder well-being, with the governance dimen-
country tax laws that differ from French tax laws;
sion reflecting the top management commitment to CSR issues by
(3) Corporations with missing financial data and/or CSR data;
balancing shareholder value creation with stakeholder value pro-
(4) Corporations with negative net income or tax refunds, as
tection (Law, 2011). Indeed, Tudway and Pascal (2006) argue that
their ETRs are likely to be distorted (Zimmerman, 1983);
maximizing shareholder value may incite firm directors to pursue a
(5) Corporations with ETRs exceeding one, as this is likely to
wider range of social and economic objectives that are consistent
cause problems with model estimation (Stickney and McGee,
with CSR.
1982).
The theoretical model presented in this study is based on the
premise that the different dimensions of CSR have different effects
on tax aggressiveness. Thus, tax aggressive dimensions are used as
the dependent variable and the four CSR dimensions as indepen- 3.2. Variable measurement
dent variables: namely, the social, governance, economic, and
environmental dimensions (Dahlsrud, 2008; Johnson and The literature identifies a number of firm-specific determinants
Greening, 1999; Laguir and Elbaz, 2014). Moreover, several that are important in explaining tax aggressiveness. Appendix A
666 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675
Fig. 1. Theoretical framework and model.
details the definitions of these variables. Below is a brief description
of the key variables.
Tax aggressiveness was measured as a latent construct, using
items based on ETRs. ETRs are most often measured from the in-
formation given in financial statements, such as tax liability divided
by income. However, appropriately defining the numerator and
denominator of this equation continues to be a topic of debate (e.g.,
Hanlon and Heitzman, 2010; Plesko, 2003). The choice to use ETRs
in this study was based on the following. First, recent empirical tax
research has found that ETRs encapsulate tax aggressiveness (e.g.,
Chen et al., 2010; Hoi et al., 2013). Second, ETRs are currently the
most frequently used proxy measure of tax aggressiveness in aca-
demic research (e.g., Dyreng et al., 2008; Lanis and Richardson,
2012; Rego, 2003). Moreover, there are two major issues in the
selection of ETR measures related to the nature of the taxes to
consider and the methods used to measure profit. First, given that
ETRs compare the current tax liability generated by taxable income
with pre-tax income based on generally accepted accounting
principles (GAAP), they measure the adeptness of a corporation at
reducing its current tax liability relative to its pre-tax accounting
income. Thus, ETRs indicate the relative tax burden across corpo-
rations. Second, given the difference between accounting (book)
income and tax income, accounting profit might not represent the
actual chargeable income of the firms (Rego, 2003). Generally, firms
using tax planning activities to reduce their taxable income while
maintaining their financial accounting income have lower ETRs,
making ETRs an appropriate measure of tax aggressiveness. To
measure the tax aggressiveness (TAG) construct, two ETR measures
(e.g., Gupta and Newberry, 1997; Lanis and Richardson, 2012) were
used: ETR1 as income tax expense currently payable divided by
book income and ETR2 as income tax expense currently payable
divided by the operating cash flow. Finally, the data used to
construct the ETRs were collected from the DIANE financial
database.
Researchers generally accept the notion that CSR is multidi-
mensional, but they usually combine the various dimensions used
to measure the construct into one aggregate measure. The work of
Johnson and Greening (1999) was expanded on by introducing the
multidimensional CSR perceptions of Dahlsrud (2008) and Girerd-
Potin et al. (2014). CSR was measured with four latent constructs
using items from the Vigeo database, which has 38 generic criteria
divided into six distinct domains. These domains are human re-
sources, human rights in workplaces, community involvement,
corporate governance, environment, and business behavior. Each of
these domain ratings ranges from 0 for less socially responsible
firms to þ4 for more socially responsible firms. The different
criteria evaluated by Vigeo for establishing the social ratings are
explained in Appendix B.
As many researchers have noted (e.g., Dyer and Whetten, 2006),
using specialized agency ratings as measures of CSR has several
advantages: the firms are rated with an objective set of screening
criteria, the agencies apply the ratings consistently across com-
panies, and they have a staff of knowledgeable individuals who are
not affiliated with any of the rated. Four dimensions were hy-
pothesized on the basis of the Vigeo database components. The first
dimension was labeled the CSR social dimension (CSR_S) and
included the human resources (HR score), human rights in work-
places (HRts score), and community involvement (CIN score) rat-
ings to measure it. The second dimension was called the CSR
governance dimension (CSR_CG) and it was measured using the
corporate governance (CG score) rating. The third dimension was
labeled the economic dimension (CSR_ECO) and the business
behavior (C&S score) ratings measured it. Finally, the environ-
mental dimension (CSR_ENV) was used, and the environment (ENV
 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675
score) rating measured it. These four constructs served as the
endogenous variables.
Several control variables were included, namely, size (SIZE),
financial performance (FinPerf), industry, capital intensity (CINT),
intangibles (INTG), leverage (LEV), and industry dummies, to
investigate how they might trigger TAG or CSR. Previous research
(e.g., Johnson and Greening, 1999) has shown that corporation size
is positively associated with corporate social performance. Specif-
ically, due to their higher visibility, larger corporations are likely to
provide more extensive corporate social performance information
in the annual report than smaller corporations (Cho et al., 2010).
Furthermore, SIZE may have an impact on tax-reducing activities.
Some studies suggest that larger corporations are likely to be more
tax aggressive than smaller corporations because they possess
greater economic and political power relative to smaller corpora-
tions and are able to reduce their tax burdens accordingly (e.g.,
Gupta and Newberry, 1997). Other studies emphasize that large
firms are subject to greater public scrutiny and, as a result, incur a
“political cost” in the form of higher ETR (Zimmerman, 1983). In
accordance with previous studies (e.g., Lanis and Richardson, 2012),
SIZE was measured as the natural logarithm of total assets.
Several recent studies have analyzed the link between CSR and
FinPerf to define the relationship, along with its meaning and
valence (Weisheng et al., 2014). Some academic studies have found
a rather positive relationship between social performance and
FinPerf (e.g., Lu et al., 2014; Margolis and Walsh, 2003), while
others have found a negative relationship (Kashif et al., 2011).
Furthermore, various studies highlight that FinPerf is positively
associated with the ETRs because an increase in FinPerf leads to an
increase in them (e.g., Lanis and Richardson, 2012). Two items were
chosen to measure the FinPerf construct. The first item, return on
assets (ROA), is defined as pre-tax income divided by total assets,
and the second is defined as pre-tax income divided by share-
holders' equity (ROE). The industry sector (Industry) construct,
defined by the French Classification of Activities (nomenclature
d'activites françaises: NAF), is also included as a control variable
because TAG and CSR may fluctuate across industry sectors (e.g.,
Lanis and Richardson, 2012). The six Industry dummy items in this
construct are as follows: manufacturing (C), energy (D), wholesale
and retail trade (G), transportation and storage (H), accommoda-
tion and food service activities (I), and professional, scientific and
technical activities (M). Last, LEV is long-term debt divided by total
assets; CINT is net property, plant and equipment, divided by total
assets; and INTG is intangible expenditures divided by total assets.
Previous research (Gupta and Newberry, 1997; Hoi et al., 2013) has
found that high LEV, CINT, and INTG correspond to low firm ETRs
and a high tax aggressiveness level. Leverage is negatively associ-
ated with TAG due to tax-deductible interest payments, CINT is
negatively associated with TAG because of accelerated depreciation
charges corresponding to asset lives, and INTG is negatively asso-
ciated with TAG as a result of tax-deductible intangible
expenditures.
3.3. Data analysis e partial least squares (PLS)
The hypotheses were tested using a partial least squares (PLS)
method for structural equation model estimation (SEM), as has
been used in a number of other studies (e.g., Fornell, 1982;
Gallardo-Vazquez and Sanchez-Hernandez, 2014; Zeng et al.,
2010). PLS was particularly suitable for this study because it makes
minimal data assumptions regarding the distribution of regression
residuals and requires a relatively small sample size (Gallardo-
Vazquez and Sanchez-Hernandez, 2014). Because PLS is a regres-
sion based technique, it requires between five and ten cases for the
most complex regression (Chin, 1998; Goodhue et al., 2012; Hair
667
et al., 2011). In this study, the most complex regression is that
with TAG as the dependent variable and nine independent vari-
ables, suggesting a minimum sample size between 45 and 90 cases.
Moreover, a construct is assumed to be reflective if the manifest
variables reflect the latent variable and they are its consequence. In
contrast, a construct is assumed to be formative if the latent vari-
able is represented by all the manifest variables and is their
consequence. Based on the conditions listed by Crie  (2005), all the
constructs used in this study were assumed to be reflective.
SmartPLS software, version 2.00, was used.
PLS comprises a measurement model and a structural model.
The measurement model specifies the relationships between
observed items and latent variables. The component score estimate
for each latent variable is obtained using a weighted aggregate of its
own indicators (Chin and Newsted, 1999). The structural model
specifies the relationships between latent constructs. Although the
measurement and structural models are estimated simultaneously
in PLS (Barclay et al., 1995), the PLS model is interpreted in two
stages. First, the reliability and validity of the measurement model
is assessed. Second, the structural model is assessed (Barclay et al.,
1995; Hair et al., 1998; Hulland, 1999). Hence, before assessing the
structural model, the quality of the measurement model was
assessed, thus addressing individual item loadings, construct reli-
ability, and convergent and discriminant validity for the constructs
(Bagozzi, 1994). By examining the individual item loadings, it is
possible to determine which items can be included in the final
model and which items may need to be considered for removal.
Items may be removed to avoid bias in the parameter estimates in
performing the structural model analysis (Hulland, 1999). The
minimum acceptable loading is generally 0.50 (Hair et al., 1998). In
the present case, Fornell and Larcker's (1981) measure of composite
reliability is used. An adequate level of composite reliability should
be above 0.7, as recommended by Nunnally (1978). The convergent
and discriminant validity of the constructs was verified by the
average variance extracted (AVE), which represents the average
variance shared between a construct and its indicators (Chin, 1998;
Fornell and Larcker, 1981). For convergent validity, AVE should be
greater than 0.50, which is the minimum acceptable (Fornell and
Larcker, 1981). The square root of AVE for each construct should
be higher than its correlation with all other constructs. This means
that the constructs, even though they are correlated, remain in-
dependent (Chin, 1998; Hulland, 1999).
In the structural model, the path standardized coefficients are
interpreted as in OLS estimation. Because PLS makes no distribu-
tional assumptions, the statistical significance of the parameter
estimates was assessed using a bootstrap procedure with 1000
replacements (Chin, 1998). Moreover, the objective of PLS is to
maximize the variance explained rather than the fit. Therefore,
prediction-orientated measures, such as R2, are used to evaluate
PLS models (Chin, 1998). An R2 greater than 0.1 demonstrates the
significance of the PLS models.
4. PLS e SEM results
This section presents the statistical characteristics of the anal-
ysis variables and the main results of the adopted methodology
along with some additional tests.
4.1. Descriptive statistics
Table 1 shows descriptive statistics for all variables used in the
baseline model. For the dependent variable ETR1 (ETR 2), the firms
in the sample have a mean of 0.1435 (0.3251). The median value is
equal to 0.1523 (0.2975). With regard to the dependent variables,
the firms in the sample have a mean (median) HR score of 43.9638
668 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675

Table 1
Descriptive statistics.

Variable N Mean Std.dev p25 Median p75 Min Max

ETR1 83 0.1435 0.0854 0.0659 0.1523 0.2180 0.0008 0.3333

ETR2 83 0.3251 0.2413 0.1164 0.2975 0.4628 0.0020 0.9650
HR score 83 43.9638 17.6320 32 48 57 4 75
ENV score 83 38.9156 17.6553 29 42 52 0 68
CS score 83 41.3855 12.2522 35 46 50 9 65
CG score 83 40.3975 12.0809 36 40 48 6 65
CIN score 83 45.0120 18.5528 34 46 59 3 77
HRts score 83 46.0120 15.2623 32 47 59 18 76
ROA 83 0.07834 0.0503 0.0381 0.0661 0.1007 0.0016 0.2344
ROE 83 0.1309 0.0736 0.0712 0.1371 0.1665 0.0044 0.3016
SIZE 83 6.79456 0.8245 6.1095 6.5286 7.7517 5.1488 8.1791
CINT 83 0.0683 0.1663 0.0027 0.00974 0.0164 0.0000 0.81022
INTG 83 0.1489 0.2964 0.0073 0.0211 0.0736 0.0000 1.2173
LEV 83 0.4701 1.0663 0.0166 0.0536 0.4092 0.0000 6.0648

(48). Moreover, the mean (median) ENV score is 38.9156 (42). The
mean (median) CS score is 41.3855 (46). The mean (median) CG
score is 40.3975 (40), and the mean (median) CIN score is 45.0120
(46). The HRts score has a mean (median) of 46.0120 (47). Finally,
for the control variables, some variables, such as ROA ROE, and SIZE,
seem symmetrically distributed, while others, such as CINT, INTG
and LEV, are quite asymmetrically distributed.
4.2. PLS-SEM results
The results of the measurement model for the full sample are
summarized in Tables 2e4. As Table 2 shows, the industry construct
was removed from the model and not used in further analysis
because of its low item loadings and lack of composite reliability
and convergent validity. All the items of final model loaded on their
respective constructs and were greater than 0.5. The factor loadings
from the final PLS measurement model are presented in Table 3.
Convergent validity appeared adequate for all constructs, as AVE
exceeded 0.5 in all cases. The discriminant validity of the constructs
is presented in Table 4, which shows that the diagonal AVE values
exceed all other scores, suggesting sufficient discriminant validity.
The results from the structural model, presented in Table 5,
indicate how the different dimensions of corporate social re-
sponsibility affect tax aggressiveness. The findings reveal a positive
and significant relationship between CSR_S and TAG (0.2899,
t ¼ 1.8566, p < 0.1), providing support for hypothesis H1. Indeed, the

Table 2
Estimation of the measurement model parameters (full sample, n ¼ 83).

Initial model Final model

Loading original sample Composite reliability Average variance Loading original sample Composite reliability Average variance
extracted (AVE) extracted (AVE)

TAG 0.8346 0.7181 0.8382 0.7227

ETR1 0.7487 0.7829
ETR2 0.9328 0.9124
CSR_S 0.9122 0.7761 0.9123 0.7762
HR score 0.8949 0.8960
HRts score 0.8852 0.8858
CIN score 0.8624 0.8610
CSR_CG 1.0000 1.0000 1.0000 1.0000
CG score 1.0000 1.0000
CSR_ECO 1.0000 1.0000 1.0000 1.0000
C&S score 1.0000 1.0000
CSR_ENV 1.0000 1.0000 1.0000 1.0000
ENV score 1.0000 1.0000
FinPerf 0.9130 0.8406 0.9128 0.8403
ROA 0.9824 0.9826
ROE 0.8462 0.8457
Industrya 0.0148 0.2068 e e
C 0.6623 e
D 0.5597 e
G 0.4561 e
H 0.0466 e
M 0.2679 e
SIZE 1.0000 1.0000 1.0000 1.0000
SIZE 1.0000 1.0000
CINT 1.0000 1.0000 1.0000 1.0000
CINT 1.0000 1.0000
INTG 1.0000 1.0000 1.0000 1.0000
INTG 1.0000 1.0000
LEV 1.0000 1.0000 1.0000 1.0000
LEV 1.0000 1.0000
a
This construct was removed from the final analysis because of its low item loadings and lack of composite reliability and convergent validity.
 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675 669

Table 3
Cross-loadings (full sample, n ¼ 83). Elements in bold are factor loadings of variables used to measure constructs of interest in the final model.

TAG CSR_S CSR_CG CSR_ECO CSR_ENV FinPerf Size CINT INTG LEV

ETR1 0.7829 0.1316 0.0691 0.6789 0.0331 0.1676 0.0876 0.1888 0.0792 0.0144
ETR2 0.9124 0.1146 0.0004 0.5926 0.0504 0.2627 0.3682 0.1600 0.2098 0.1905
HR score 0.0854 0.8960 0.4991 0.6789 0.7769 0.1358 0.3774 0.0233 0.0905 0.2231
HRts score 0.1022 0.8858 0.3704 0.5926 0.6114 0.2571 0.3492 0.1009 0.0010 0.1165
CIN score 0.1773 0.8610 0.3416 0.5872 0.7361 0.0334 0.4148 0.2792 0.0242 0.0825
CG score 0.0316 0.4560 1.0000 0.4958 0.4489 0.2594 0.2951 0.0209 0.0600 0.3217
C&S score 0.0522 0.7026 0.4958 1.0000 0.7405 0.1705 0.4104 0.0355 0.1235 0.2333
ENV score 0.0506 0.8065 0.4489 0.7405 1.0000 0.0709 0.4078 0.1907 0.0072 0.0731
ROA 0.2811 0.1887 0.2826 0.2200 0.1013 0.9826 0.2416 0.2167 0.1392 0.0340
ROE 0.1510 0.0291 0.1396 0.0066 0.0306 0.8457 0.1801 0.2082 0.1775 0.0263
SIZE 0.2983 0.4341 0.2951 0.4104 0.4078 0.2383 1.0000 0.2156 0.1355 0.0175
CINT 0.0250 0.1598 0.0209 0.0355 0.1907 0.2265 0.2156 1.0000 0.8976 0.7355
INTG 0.1104 0.0227 0.0600 0.1235 0.0072 0.1574 0.1355 0.8976 1.0000 0.8811
LEV 0.1268 0.1573 0.3217 0.2333 0.0731 0.0195 0.0175 0.7355 0.8811 1.0000

Table 4
Discriminant validity coefficients (full sample, n ¼ 83). Diagonal elements (bold) are the square root of the variance shared between the constructs and their indicators (AVE).
Off-diagonal elements are the correlations between constructs. For discriminant validity, diagonal elements should be larger than off-diagonal elements.

TAG CSR_S CSR_CG CSR_ECO CSR_ENV FinPerf Size CINT INTG LEV

TAG 0.8501
CSR_S 0.1410 0.8810
CSR_CG 0.0316 0.4560 1
CSR_ECO 0.0522 0.7026 0.4958 1
CSR_ENV 0.0506 0.8065 0.4489 0.7405 1
FinPerf 0.2613 0.1557 0.2594 0.1705 0.0709 0.9166
Size 0.2983 0.4341 0.2951 0.4104 0.4078 0.2383 1
CINT 0.0250 0.1598 0.0209 0.0355 0.1907 0.2265 0.2156 1
INTG 0.1104 0.0227 0.0600 0.1235 0.0072 0.1574 0.1355 0.8976 1
LEV 0.1268 0.1573 0.3217 0.2333 0.0731 0.0195 0.0175 0.7355 0.8811 1

Table 5
PLS structural model: path coefficients, t-statistics and R2 (full sample, n ¼ 83). Each cell reports the path coefficient (t-value). Blank cells indicate that the path was not
hypothesized within the model; *** Significance at the 0.01 level; ** Significance at the 0.05 level; * Significance at the 0.1 level.

Dependent Independent variables

variables
TAG CSR_S CSR_CG CSR_ECO CSR_ENV FinPerf Size CINT INTG LEV R2 Communality

TAG e 0.2899 0.0934 0.3554 0.2029 0.3781 (4.1670)*** 0.4379 (4.1933)*** 0.4948 0.5953 0.0120 0.3334 0.7227
(1.8566)* (0.6779) (2.5659)** (1.0509) (2.1827)** (1.7978)* (0.0519)
CSR_S e e e e e 0.0519 (0.4593) 0.4209 (4.9656)*** e e e 0.1914 0.7762
CSR_CG e e e e e 0.2004 (2.0403)** 0.2474 (3.1549)*** e e e 0.1250 1.0000
CSR_ECO e e e e e 0.0771 (0.6527) 0.3920 (5.0793)*** e e e 0.1740 1.0000
CSR_ENV e e e e 0.0278 (0.2494) 0.4145 (5.3893)*** 0.1671 1.0000

more the firms engaged in human resources activities, human
rights in workplaces, and community involvement, the higher their
ETRs were and, thus, the lower the likelihood that they would be
tax aggressive in nature. The results also show a negative and sig-
nificant relationship between CSR_ECO and TAG (0.3554,
t ¼ 2.5659, p < 0.05), suggesting that the more firms engaged in
business behavior efforts, the lower their ETRs were and, thus, the
higher the likelihood that they would be tax aggressive in nature.
Hence, hypothesis H3 is supported. Moreover, the findings show no
significant relationship between CSR_CG, and TAG, thus rejecting
hypothesis H2. Finally, the results also reveal no significant rela-
tionship between CSR_ENV and TAG, rejecting hypothesis H4.
In terms of control variables, financial performance was posi-
tively and significantly associated with TAG (0.3781, t ¼ 4.1670,
p < 0.01), which is consistent with the expectations because tax rates
are progressive according to income. Another alternative explana-
tion for this finding might be that the availability of funds in the case
of a financially successful company allows investment in CSR ac-
tivities. Financial performance was negatively and significantly
associated with CSR governance (0.2004, t ¼ 2.0403, p < 0.05).
Moreover, SIZE was positively and significantly associated with TAG
(0.4379, t ¼ 4.1933, p < 0.01), CSR_S (0.4209, t ¼ 4.9656, p < 0.01),
CSR_CG (0.2474, t ¼ 3.1549, p < 0.01) CSR_ECO (0.3920, t ¼ 5.0793,
p < 0.01) and CSR_ENV (0.4145, t ¼ 5.3893, p < 0.01), which is
consistent with the literature showing that larger corporations are
likely to provide higher CSR efforts (e.g., Johnson and Greening,
1999) and lower tax aggressiveness (e.g., Zimmerman, 1983). The
results reveal that CINT was positively and significantly associated
with TAG (0.5124, t ¼ 2.329, p < 0.05), which is inconsistent with
expectations, although this result is consistent with the findings of
Armstrong et al. (2011) and Huseynov and Klamm (2012), who
demonstrated that the positive effect may be related to long-term
timing issues. This finding can also be interpreted in the light of
the observation that higher operating Leverage (% of fixed costs in
the cost structure) increases the perceived risk and leads to defen-
sive policies, including tax manipulation and, eventually, lower CSR
engagement. Furthermore, the variable INTG is negatively and
significantly associated with TAG (0.5953, t ¼ 1.7978, p < 0.1),
which is consistent with expectations because ETRs decrease as a
result of tax-deductible intangible expenditures.
670 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675
Finally, the results show no significant relationship between LEV
and TAG, which is inconsistent with the conventional hypothesis
that an increase in debt is associated with lower tax rates. Never-
theless, the results are similar to those of Huseynov and Klamm
(2012) and Minnick and Noga (2010) who found no significant
relationship between LEV and TAG in their studies.
Although no overall index of model validation is given with
Smart PLS 2.0 (as is the case for structural equation methods based
on covariance), an index of overall model quality was developed
(Amato et al., 2005) to remedy this. The index is obtained by
calculating the geometric mean of R2 and the communality scores.
This index is called the goodness-of-fit (GoF), and it ranges from
0 (invalidation of the model) to 1 (perfect model validation). The
formula is written as follows (Tenenhaus et al., 2005) in Equation
(1):
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
GoF ¼ communality  R2
The GoF was computed, yielding GoF ¼ 0.4223, indicating
acceptable validity for the model.
The results of the PLS structural model analysis are depicted in
Fig. 2.
4.3. Additional analysis
The study's dependent variable of interest is corporate tax
aggressiveness (TAG). Thus, in this section, several proxy measures
for TAG are used, including the book-tax gap (BTG), to improve the
robustness of results. BTG is considered an effective measure of tax
aggressiveness because large differences between accounting
(book) income and taxable income are common among firms that
show significant tax aggressive behavior (e.g., Desai and
Fig. 2. PLS structural model with significant path coefficients. ***p < 0.01, **p < 0.05, *p < 0.1.
Dharmapala, 2006; Frank et al., 2009; Wilson, 2009). Firms can
structure transactions to generate large temporary or permanent
differences between accounting and taxable income. Thus, the first
measure of tax aggressiveness (BTG1) involves the assessment of
the raw BTG, which captures tax strategies that lead to both tem-
porary and permanent differences. Following the method in
Manzon and Plesko (2002), BTG1 is computed as pre-tax ac-
counting income less taxable income scaled by total assets, with
taxable income calculated as income tax expense divided by the
statutory maximum corporate tax rate of 33.1/3%. The second
measure of tax aggressiveness (BTG2) is computed as the BTG re-
sidual, following Desai and Dharmapala (2006). BTG is adjusted in
the same way they do, in order to control for the earnings man-
agement strategies (the smoothing of reported income over time in
order to reach bonus targets and to achieve other aims) that may be
responsible for it. Specifically, the BTG component attributable to
(1) earnings management (via income-changing discretionary ac-
cruals) is removed to leave a residual value that is inferred to
capture tax aggressiveness.
As noted earlier, CSR is measured with four latent constructs,
using items from the Vigeo database, which has 38 generic criteria
divided into six distinct domains. In this section, an additional PLS-
SEM analysis is performed to determine which of the six individual
CSR categories are significantly associated with tax aggressiveness.
Appendix C, Panel A, presents the results. Specifically, the findings
reveal a positive and significant relationship between the CIN score
and TAG (0.3644, t ¼ 2.4834, p < 0.05), a negative and significant
relationship between the CIN score and BTG2 (0.3410, t ¼ 2.8987,
p < 0.05), and a negative and significant relationship between the
HR score and BTG2 (0.4058, t ¼ 1.8506, p < 0.1), providing further
support for hypothesis H1. Thus, the more the firms engaged in
community involvement and in human resource activities, the
 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675
lower the likelihood they would be tax aggressive in nature. The
findings also show a negative and significant relationship between
the C&S score and TAG (0.3391, t ¼ 2.6495, p < 0.01). This result is
in line with previous hypothesis H3. Last, the findings also reveal a
positive and significant relationship between the ENV score and
BTG2 (0.5404, t ¼ 2.8987, p < 0.01), providing support for hy-
pothesis H4. These last results suggest that the more firms engaged
in economics and environmental CSR categories, the higher the
likelihood they would be tax aggressive in nature.
This section also includes additional control variables from the
literature on tax aggressiveness and corporate governance. In
particular, the following are controlled for: discretionary accruals
(DiscAccruals), growth opportunity (GROWTH), board size
(BOSIZE), CEO duality (CEODUAL), and stock ownership of the
board of directors (STOBOD).
DiscAccruals control for the connection between aggressive
financial and tax reporting. Using DiscAccruals as a proxy for
financial reporting aggressiveness and BTGs as a proxy for tax-
reporting aggressiveness, Frank et al. (2009) found that firms
choosing to report aggressively for book purposes also report
aggressively for tax purposes. DiscAccruals are measured as net
income before extraordinary items minus cash flow from opera-
tions scaled by total assets. Appendix C, Panel B, presents the re-
sults, which show no significant relationship between DiscAccruals
and tax aggressiveness proxies.
GROWTH controls for differences in the extent of firm growth.
GROWTH is measured as a change in sales scaled by sales for firm i,
year t. Due to the conflicting results obtained for this variable in
previous research (e.g., Adhikari et al., 2006; Gupta and Newberry,
1997), no sign prediction is made for it. Appendix C, Panel C, pre-
sents the results. The findings reveal that GROWTH is positively and
significantly associated with BTG1 and negatively and significantly
associated with BTG2. As expected, these conflicting results are
consistent with prior research. Thus, when the BTG component
attributable to earnings management is removed, the relationship
between growth and tax aggressiveness turns from a positive to
negative. One explanation may be related with the findings of Frank
et al. (2009), suggesting that firms choosing to report aggressively
for book purposes also report aggressively for tax purposes.
BOSIZE is included to control whether board size affects tax
aggressiveness, as the number of members on the board of di-
rectors can influence its controlling function. BOSIZE is measured as
the number of board members. The results presented in Appendix
C, Panel D, show that BOSIZE is positively and significantly associ-
ated with TAG and negatively and significantly associated with
BTG2. Thus, the greater the size of the board, the lower the level of
tax aggressiveness is. CEODUAL is included to control for cases
where the CEO and chairperson's positions are combined. Because
managing CEO goals and results is a function of the chairperson, the
CEO cannot carry out the chairperson's monitoring function sepa-
rately from his or her personal interests and may hide rent
extraction through tax aggressiveness (Jensen, 1993; Laguir and
Stagliano
, 2014). CEODUAL is measured as a dummy variable that
takes a value of 1 if the chairperson of the board also holds the
managerial position of CEO or managing director, and 0 otherwise.
The results presented in Appendix C, Panel D, show that CEODUAL
is negatively and significantly associated with TAG and positively
and significantly associated with BTG2. As expected, when the
positions of CEO and chairperson are combined, the level of tax
aggressiveness is higher. STOBOD controls for the extent to which
managers serving on the board as directors own ordinary stock in
the corporation. It has been suggested that encouraging manage-
ment to hold an equity interest in a firm gives them greater
incentive to increase the value of the corporation. However, man-
agers may also be motivated to inflate the stock price by engaging
671
in fraudulent behavior (Desai and Dharmapala, 2008; Loebbecke
et al., 1989). STOBOD is measured as the number of insiders (e.g.,
managers) who serve on the board and hold shares. Appendix C,
Panel D, presents the results, which show no significant relation-
ship between STOBOD and tax aggressiveness proxies.
Finally, CRISIS is included to control for whether the recent
financial crisis affects tax aggressiveness. It is measured as a
dummy variable that takes a value of 1 for the observations
belonging to the period 2009-2011, and 0 otherwise. The findings
(Appendix C, Panel E) reveal that CRISIS is positively and signifi-
cantly associated with BTG2. Thus, in the crisis period, firms tended
to enhance their tax aggressiveness. The results of the coefficients
for the six CSR scores presented in first three columns persist and
do not seem to be affected by the inclusion of this variable.
5. Discussion and conclusions
The aim of this study was to examine how CSR activities influence
corporate tax aggressiveness. As such, the study is among the first to
provide empirical evidence regarding the impact of different CSR di-
mensions on a firm's tax aggressiveness. A structural model was tested
using PLS to examine whether the relationship between the various
CSR dimensions and tax aggressiveness was positive or negative.
The results indicate that a firm's tax aggressiveness depends on
the nature of the CSR activities it engages in. More specifically, the
higher the level of the CSR social dimension, the lower the level of
tax aggressiveness, whereas the higher the level of the CSR eco-
nomic dimension, the higher the level of tax aggressiveness. Thus,
firms engaging in the CSR activities of human resources, human
rights in workplaces and community involvement were less likely
to engage in tax aggressiveness. These findings extend the prior
literature suggesting that corporations that engage more in CSR
activities pay their fair share of corporate taxes and are therefore
less tax aggressive in nature. Moreover, the firms engaging in the
CSR activities related to business behavior were more likely to
engage in tax aggressiveness. These findings are consistent with the
observation that some firms claiming to be socially responsible are
also engaged in tax aggressive activities. Indeed, by engaging in CSR
activities related to business behavior, firms develop a culture that
promises ethical conduct to external audiences, and this becomes
decoupled from the organizational practices that are geared toward
improving profits through tax planning activities.
The findings in this paper have several theoretical implications.
First, the study reveals that tax aggressiveness depends mainly on
social and economic CSR dimensions, a finding that strongly support
the premise that the dimensions of CSR should not be aggregated into
a single measure because interesting and explanatory information is
lost when such a method is used. Second, the findings indicate that
firms with high financial performance show lower engagement in
CSR activities related to corporate governance. Although recent
literature reviews have found a rather positive relationship between
financial performance and CSR, the present findings were consistent
with the observation that strong financial performance pushes
managers to moderately develop CSR activities to increase firm
profitability and, thereby, their own revenues, whereas poor financial
performance will lead them to significantly develop CSR activities. In
addition, the results indicate that the higher the firm's financial
performance, the lower the level of tax aggressiveness, which is
consistent with the conventional hypothesis because tax rates are
progressive according to income. Third, the study reveals that larger
firms are less likely to engage in tax aggressiveness. This finding is
consistent with political cost theory, which suggests that the higher
visibility of larger and more prosperous firms causes them to become
victims of greater regulatory actions by the government and wealth
transfers. As a result, they incur a “political cost” in the form of a need
672 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675

for lower tax aggressiveness. In addition, the results show that larger
firms provide greater CSR activities, which is consistent with the
literature showing that larger corporations are likely to provide
higher CSR efforts.
Overall, the study provides unique insight into the association
between CSR activities and corporate tax aggressiveness. Moreover,
the findings illustrate how PLS can be used to explore the impact of
the various CSR dimensions, and indeed this technique identified
those CSR activities that increased or decreased corporate tax
aggressiveness. Furthermore, the findings provide insight for tax
administrations seeking to identify the conditions under which the
risk of corporate tax aggressiveness is higher and can help them draft
efficient tax regulations that improve both firms' tax compliance and
CSR activities. Finally, these results can be of value to investors and
business consultants seeking to identify the circumstances under
which a firm's CSR activities can be used for tax aggressive purposes,
allowing them to construct portfolios by accounting for the impact of
CSR activities on the tax aggressiveness of these portfolios.
This empirical study has several limitations that should be
considered before drawing conclusions from the results. Indeed,
the sample is limited to publicly listed firms because only that in-
formation about tax aggressiveness and CSR activities in the public
domain could be collected. Furthermore, when used with small
sample sizes, PLS, similar to the other techniques, suffers from
increased standard deviations, decreased statistical power, and
reduced accuracy. Furthermore, tax aggressiveness (ETR) measures
are based on financial statement data. The literature questions the
accuracy of financial statement-based tax aggressiveness measures,
so these results should be interpreted with some caution. Another
limitation is the comparability with studies that used other sources
for CSR scores based on other rating methodologies (e.g., KLD is
different from Vigeo). Even though the dimensions of KLD and
Vigeo are close, their results may be different. Indeed, five KLD
scores directly correspond to Vigeo ratings, while KLD has a specific
score for diversity that Vigeo includes in the human rights score.
In terms of further research, additional work could investigate
why in specific business contexts firms with certain CSR charac-
teristics show higher/lower tax aggressiveness. Furthermore, future
studies should analyze the possible existence of a curvilinear
relationship between CSR and tax aggressiveness. Finally, it would
be relevant to examine the extent to which the use of CSR activities
for tax aggressiveness purposes is influenced by managerial self-
dealing and how the markets and a firm's stakeholders, including
shareholders, employees, regulators, customers, and communities,
respond to the firm's choices.
Acknowledgments
We thank the Associate Editor of the Journal of Cleaner Produc-
tion, Rodrigo Lozano, and the four anonymous referees for their
insightful comments. We would also like to thank Vigeo (Fouad
Benseddik) for kindly providing the data. All mistakes are the
authors' responsibility.
Appendix A. Variable definitions.

Variables Definitions

ETR1 Income tax expense currently payable divided by book income

ETR2 Income tax expense currently payable divided by the operating cash flow
BTG1 Pre-tax accounting income less taxable income scaled by total assets
BTG2 Applying the Desai and Dharmapala (2006) methodology, taxable income is calculated as: TIit ¼ accounting income tax expense divided by the
statutory maximum corporate tax rate of 33.1/3%. The BTG is calculated by subtracting TI from pre-tax accounting income (AI): BTGit ¼ AIit  TIit. The
BTG is scaled by total assets. The sample is not restricted to firms with positive BTG because those firms with TI > AI can and do use carry-forward tax
losses to reduce the amount of corporate tax payable. Total accruals (TA) were calculated for each firm in each year using the measure of total
accruals developed by Healy (1985).Total accruals are considered to measure the earnings management component of the BTG as follows:
TAit ¼ EBEIiteðCFOit  EIDOitÞ (2)

where:
TAit total accruals for firm i in year t; EBEIit income before extraordinary items for firm i in year t; CFOit cash flows from operations for firm i in year t;
and EIDOit extraordinary items and discontinued operations from the statement of cash flows for firm i in year t.
The following ordinary least squares (OLS) regression is performed to account for the component of the BTG attributable to earnings management:
BTGit ¼ b1TAit þ mit þ εit (3)

where: BTGit is the book-tax gap scaled by total assets for firm i in year t; TAit total accruals scaled by total assets for firm i in year t; mit the residual for
firm i in year t; and εit the error term for firm i in year t.
The residual value of the BTG is considered to reflect tax aggressiveness (TAG):
TAGit ¼ mit þ εit (4)

CSR activity ratings CSR activities are grouped according to the following six ratings (see Appendix B for details of items for each rating): human resources (HR score),
human rights in workplaces (HRts score), community involvement (CIN score), corporate governance (CG score), business behavior (C&S score) and
environment (ENV score).
SIZE Natural logarithm of total assets
ROA Pre-tax income divided by total assets
ROE Pre-tax income divided by shareholders' equity
CINT Net property, plant and equipment, divided by total assets
INTG Intangible expenditures divided by total assets
LEV Long-term debt divided by total assets
DiscAccruals Net income before extraordinary items minus cash flow from operations scaled by total assets
GROWTH Change in sales scaled by sales for firm i, year t
BOSIZE Number of board members
CEODUAL Dummy variable that takes a value of 1 if the chairperson of the board also holds the managerial position of CEO or managing director, and
0 otherwise
STOBOD Number of insiders (e.g., managers) who serve on the board and hold shares
Industry This set of variables is composed of binary variables that take a value of one when the firm's business is in one of the following six industries and zero
otherwise. Industries are defined by the French Classification of Activities (nomenclature d'activite s françaises: NAF). C indicates manufacturing; D,
energy; G, wholesale and retail trade; H, transportation and storage; I, accommodation and food service activities; M, professional, scientific and
technical activities.
 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675 673

Appendix B. Vigeo's ratings.

(2.4115)***

(2.6315)***

(2.5850)***

(2.7940)***
0.2972

0.3332

0.1333
(1.4297)

(1.2061)

(0.5794)
Vigeo's ratings are established following criteria and fields of

0.3379

0.0797

0.4373

0.2627
BTG2
social responsibility based on a reference framework. This

Panel E: The impact of crisis

e
framework is based on the best practices recommended by inter-

0.2183

0.2718

0.0025
(0.2592)

(0.4384)

(1.5345)

(1.2868)

(1.1683)

(1.3359)

(0.0239)
national organizations such as the UN, ILO, and OECD. More pre-

0.0474

0.0793

0.2401

0.1573
Dependent variables

BTG1
cisely, Vigeo rates six domains for social responsibility: “Human

e
Resources,” “Environment,” “Corporate Governance,” “Community
Involvement,” “Business Behavior,” and “Human Rights.” More pre-

(2.3482)***

(2.5482)***
cise details are available on Vigeo's website: http://www.vigeo.

0.3383

0.0710

0.0377
(0.0911)

(0.4610)

(0.7078)

(0.3394)

(0.3645)
0.0202

0.0786

0.3629

0.0991
com/csr-rating-agency/en.

TAG

e
(2.3194)***

(2.8807)***

(2.3122)***
(2.1706)**
(1.7279)*
0.3890

0.2757

0.0832

0.2702

0.0940
(0.7678)

(0.5693)

(0.6464)

(1.0279)
0.3416

0.0832

0.5907

0.1043
BTG2

e
governance characteristics
Category Criteria

0.0190

0.2506

0.2177

0.0421
(0.0978)

(0.6030)

(1.0852)

(1.3886)

(1.3959)

(1.1922)

(1.4744)

(0.3078)

(0.7242)
Panel D: The impact of

0.1022

0.1701

0.1717

0.2328

0.0820
Dependent variables

BTG1
Human Resources Promotion of labor relations
Encouraging employee participation

e
Responsible management of restructurings
Career management and promotion of employability

(2.7126)***

(3.9278)***

(2.0204)***
Quality of remuneration systems

0.0287

0.3371

0.0070

0.1915

0.0106
(0.1608)

(0.0876)

(1.0330)

(0.3710)

(0.0367)

(0.0876)
0.1145

0.1565

0.0427

0.4331
Improvement of health and safety conditions

TAG
Respect and management of working hours

e
Community Promotion of social and economic development
Involvement Societal impacts of the company's products/services

(2.2769)***

(2.9244)***
(1.7886)*
Contribution to general interest causes

0.2613

0.0090

0.2012

0.2404

0.2281
(0.0498)

(1.2695)

(0.8313)

(1.2887)
0.4483

0.1228
Human Rights Respect for fundamental human rights

BTG2
Respect for freedom of association and the right to

e
collective bargaining
Non-discrimination and promotion of equal opportunity

(3.3381)***
Panel C: The impact of

and diversity
Dependent variables

0.1942

0.0268

0.0802

0.0486
(1.4815)

(1.7861)

(0.8691)

(0.2844)

(0.4722)

(0.2638)
growth opportunity

0.2646

0.1253

0.3638
Elimination of child labor and forced labor
BTG1

Balance of power and efficiency of the board

e
Corporate Balance of power and efficiency of the board
Governance Audit and internal controls
0.0644

0.3758

0.1965

0.0808
(0.6488)

(0.3450)

(3.5922)

(0.5940)

(3.0202)

(1.0391)

(1.5039)
Ensuring the fair and equal treatment of minority
0.1177

0.5265

0.0627
shareholders
TAG

e
Transparency and integration of CSR criteria into
executive remuneration
(2.4005)***

(2.9604)***

(2.8547)***
Environment Environmental strategy
(1.6901)*
0.4016

0.3474

0.0587
(0.5021)

(0.5019)

(0.4012)
Accidental pollution prevention and control
0.3657

0.0731

0.5379

0.0338
BTG2

Development of green products and services

Protection of biodiversity
e

e
Management of water resources
0.0016

0.0287

0.2670

0.0388

Management of environmental impacts from energy use

(1.2556)

(0.1532)

(1.0912)

(0.0124)

(0.1797)

(1.4713)

(0.4012)
Panel B: The impact of
discretionary accruals

0.1808

0.0228

0.1586
Dependent variables

Management of atmospheric emissions

BTG1

Waste management
e

e
Management of local pollution
Management of environmental impacts from
(3.2492)***

(2.2929)***

transportation
0.0662

0.3179

0.1226

0.0609
(0.3286)

(0.9485)

(0.5601)

(0.6878)

(0.8861)
0.1442

0.4553

0.0802

Management of environmental impacts from the use and

TAG

disposal of products/services
e

e
Business Behavior Product safety
Responsible information to customers
(2.4319)***

(2.8987)***

(3.0820)***

Responsible customers relations

(1.8506)*
0.4058

0.3410

0.0618
(0.5786)

(0.4571)

Sustainable relationships with suppliers

0.3626

0.0657

0.5404
Panel A: The impact of using the

BTG2

Environmentally responsible supply chain management

e

Socially responsible supply chain management

Prevention of corruption
0.2183

0.2728
(0.2688)

(0.4701)

(1.5915)

(1.3205)

(1.1691)

(1.4218)

Prevention of anti-competitive practices

0.0484

0.0789

0.2402

0.1567
Dependent variables
six CSR dimensions

BTG1

Transparency and integrity of influencing practices

e

e
(2.4834)**

(2.6495)**
0.3391

0.0864
(0.1658)

(0.4297)

(0.6494)

(0.4322)
0.0358

0.0733

0.3644

0.0910

Appendix C. PLS structural model: path coefficients and t-

TAG

statistics (full sample, n ¼ 83). Each cell reports the path

e

coefficient (t-value). Blank cells indicate that the path was

Independent

DiscAccruals

not hypothesized within the model. ***p < 0.01, **p < 0.05,
HRts score

ENV score
C&S score

CEODUAL
GROWTH
CIN score
variables

HR score

CG score

STOBOD

*p < 0.1.
BOSIZE

CRISIS
674 I. Laguir et al. / Journal of Cleaner Production 107 (2015) 662e675

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