Open Access Open Access  Restricted Access Subscription or Fee Access

Does Tax Avoidance Diminish Firms’ Sustainability?

Chika Saka, Tomoki Oshika, Masayuki Jimichi


Firm tax avoidance has gathered substantial public attention in both the real world and academic literature. Stakeholder theory suggests that firms need to maintain good relationships with all firm stakeholders to be sustainable. Although it makes the firm profitable (i.e., higher net income after tax) in the short run, tax avoidance may diminish the sustainability of firms. We thus examine the relationship between tax avoidance and sustainability. First, we find that
on the specific charts we draw, the location parameters of sustainable firms are clearly greater than those of others. Second, we examine the relationship between firm tax avoidance and financial sustainability using the LOGIT model and find that the effective tax rates (ETRs) of the firms are tied with their sustainability. Our results indicate that tax avoidance diminishes sustainability.


Tax avoidance; Sustainability; Effective tax rates (ETRs); Statutory tax rate

Full Text:



Armstrong, C. S., Blouin, J. L., and Jagplinzer, A. D. (2015), “Corporate governance incentives and tax avoidance”, Journal of Accounting and Economics, Vol. 60, pp. 1-17.

Austin, C. R., and Wilson, R. J. (2017), “An examination of reputational costs and tax avoidance: Evidence from firms with valuable consumer brands”, The Journal of the American Taxation Association, Vol. 39 No. 1, pp. 67-93.

Badertscher, B. A., Katz, S. P., and Rego, S. O. (2013), “The separation of ownership and control and corporate tax avoidance”, Journal of Accounting and Economics, Vol. 56, pp. 228-250.

Badurdeen, F., and Jawahir, I. S. (2017), “Strategies for value creation through sustainable manufacturing”, Procedia Manufacturing, Vol. 8, pp. 20-27.

Bebbington, J., Russell, S., and Thomson, I. (2017), “Accounting and sustainable development: Reflections and propositions”, Critical Perspectives on Accounting, Vol. 48, pp. 21-34.

Çalişkan, A.Ö. (2014), “How accounting and accountants may contribute in sustainability”, Social Responsibility Journal, Vol. 10 No. 2, pp. 246-267.

Chen, S., Chen, X., Cheng, Q., and Shevlin, T. (2010), “Are family firms more tax aggressive than non-family firms?”, Journal of Financial Economics, Vol. 95, pp. 41-61.

Chyz, J. A., Leung, W. S. C., Li, O. Z., and Rui, O. M. (2013), “Labor unions and tax aggressiveness”, Journal of Financial Economics, Vol. 108, pp. 675-698.

David, F., and Gallego, I. (2009), “The interrelationship between corporate income tax and corporate social responsibility”, Journal of Applied Accounting Research, Vol. 10 No. 3, pp. 208-223.

Davis, A. K., Guenther, S. A., Krull, L. K., and Williams, B. M. (2016), “Do socially responsible firms pay more taxes”, The Accounting Review, Vol. 91 No. 1, pp. 47-68.

Desai, M. A., and Dharmapala, D. (2006), “Corporate tax avoidance and high-powered incentives”, Journal of Financial Economics, Vol. 79, pp. 145-179.

Dyreng, S. D., Hanlon, M., and Maydew, E. L. (2008), “Long-run corporate tax avoidance”, The Accounting Review, Vol. 83 No. 1, pp. 61-82.

Dyreng, S. D., Hanlon, M., and Maydew, E. L. (2010), “The effects of executives on corporate tax avoidance”, The Accounting Review, Vol. 85 No. 4, pp. 1163-1189.

Dyreng, S. D., Hanlon, M., Maydew, E. L., and Thornock, J. R. (2017), “Changes in corporate effective tax rates over the past 25 years”, Journal of Financial Economics, Vol. 124 No. 3, pp. 441-463.

Finér, L., and Ylönen, M. (2017), “Tax-driven wealth chains: A multiple case study of tax avoidance in the Finnish mining sector”, Critical Perspectives on Accounting, Vol. 48, pp. 53-81.

Frank, M. M., Lynch, L. J., and Rego, S. O. (2009), “Tax reporting aggressiveness and its relation to aggressive financial reporting”, The Accounting Review, Vol. 84 No. 2, pp. 467-496.

Freeman, R. E. (2004), “A stakeholder theory of modern corporations”, in Ethical Theory and Business, Beauchamp, T. Bowie, N. and Arnold, D. (Eds.), Prentice Hall, Upper Saddle River, N.J. pp. 38-48.

Freeman, R. E., and Evan, W. M. (1990), “Corporate governance: a stakeholder interpretation”, Journal of Behaviour Economics, Vol. 19 No. 4, pp. 337-359.

Freeman, R. E., Wicks, A. C., and Parmar, B. (2004), “Stakeholder theory and the corporate objective revisited”, Organization Science, Vol. 15 No. 3, pp. 364-369.

Goh, B. W., Lee, J., Lim, C. Y., and Shevlin, T. (2016), “The effect of corporate tax avoidance on the cost of equity”, The Accounting Review, Vol. 91 No. 6, pp. 1647-1670.

Gordon, E. A., Greiner, A., Kohlbeck, M. J., Lin, S., and Skaife, H. (2013), “Challenges and opportunities in cross-country accounting research”, Accounting Horizons, Vol. 27 No. 1, pp. 141-154.

Graham, J. R., Raedy, J. S., and Shackelford, D. A. (2012), “Research in accounting for income taxes”, Journal of Accounting and Economics, Vol. 53 No. 1, pp. 412-434.

Graham, J. R., Hanlon, M., Shevlin, T., and Shroff, N. (2014), “Incentives for tax planning and avoidance: Evidence from the field”, The Accounting Review, Vol. 89 No. 3, pp. 991-1023.

Gray, S. J. (1988), “Towards a theory of cultural influence on the development of accounting systems internationally”, Abacus, Vol. 24 No. 1, pp. 1-15.

Hanlon, M., and Heitzman, S. (2010), “A review of tax research”, Journal of Accounting and Economics, Vol. 50 No. 2, pp. 127-178.

Hasseldine, J., and Morris, G. (2013), “Corporate social responsibility and tax avoidance: A comment and reflection”, Accounting Forum, Vol. 37, pp. 1-14.

Hope, O.-K., Ma, M., and Thomas, W.-B. (2013), “Tax avoidance and geographic earnings disclosure”, Journal of Accounting and Economics, Vol. 56 No. 2, pp. 170-189.

Khan, M., Srinivasan, S., and Tan, L. (2017), “Institutional ownership and corporate tax avoidance: New evidence”, The Accounting Review, Vol. 92 No. 2, pp. 101-122.

Kim, H.-B., Lee, Y., and Zhang, L. (2011), “Corporate tax avoidance and stock price crash risk: Firm-level analysis”, Journal of Financial Economics, Vol. 100, pp. 639-662.

Lanis, R., and Richardson, G. (2012a), “Corporate social responsibility and tax aggressiveness: An empirical analysis”, Journal of Accounting and Public Policy, Vol. 31, pp. 86-108.

Lanis, R., and Richardson, G. (2012b), “Corporate social responsibility and tax aggressiveness: A test of legitimacy theory”, Accounting, Auditing and Accountability Journal, Vol. 26. No. 1, pp. 75-100.

Lanis, R., and Richardson, G. (2015), “Is corporate social responsibility performance associated with tax avoidance?”, Journal of Business Ethics, Vol. 127, pp. 439-457.

Lankoski, L. (2016), “Alternative conceptions of sustainability in a business context”, Journal of Cleaner Production, Vol. 139, pp. 847-857.

Lee, N., and Swenson, C. (2016), “Effects of overseas subsidiaries on worldwide corporate taxes”, Journal of International Accounting, Auditing and Taxation, Vol. 26, pp. 47-59.

Lehman, C. R. (1992), Accounting’s Changing Role in Social Conflict. Markus Wiener Publishing, New York, NY.

Lennox, C., Lisowsky, P., and Pittman, J. (2013), “Tax aggressiveness and accounting fraud”, Journal of Accounting Research, Vol. 51 No. 4, pp. 739-778.

Markle, K., and Shackelford, D. (2012), “Cross-country comparisons of corporation income tax rates”, National Tax Journal, Vol. 65 No. 3, pp. 493-527.

Moldavska, A., and Welo, T. (2017), “The concept of sustainable manufacturing and its definitions: A content-analysis based literature review”, Journal of Cleaner Production, Vol. 166, pp, 744-755.

Montiel, I., and Delgado-Ceballos, J. (2014), “Defining and measuring corporate sustainability: are we there yet?”, Organization and Environment, Vol. 27 No. 2, pp. 113-139.

Oshika, T., and Saka, C. (2017), “Sustainability KPIs for integrated reporting”, Social Responsibility Journal, Vol. 13, No. 3. pp. 625-642.

Pater, L. R., and Cristea, S. L. (2016), “Systemic definitions of sustainability, durability and longevity”, Procedia – Social and Behavioral Sciences, Vol. 221, pp. 362-371.

Piketty, T. (2014), Capital in the Twenty-First Century, Harvard University Press, Cambridge, MA.

Preuss, L. (2010), “Tax avoidance and corporate social responsibility: you can’t do both, or can you?”, Corporate Governance, Vol. 10 Iss. 4, pp. 365-374.

Rego, S. O. (2003), “Tax-avoidance activities of U.S. multinational corporations”, Contemporary Accounting Research, Vol. 20 No. 4, pp. 803-833.

Richardson, G., Wang, B., and Zhang, X. (2016), “Ownership structure and corporate tax avoidance: Evidence from publicly listed private firms in China”, Journal of Contemporary Accounting & Economics, Vol. 12, pp. 141-158.

Saka, C., Oshika, T. and Jimichi, M. (2019) “Visualization of tax avoidance and tax rate convergence: exploratory analysis of world-scale accounting data”, Meditari Accountancy Research, Vol. 27 No. 5, pp. 695-724.

Salihu, I. A., Annuar, H. A., and Obid, S. N. S. (2015), “Foreign investors’ interests and corporate tax avoidance: Evidence from an emerging economy”, Journal of Contemporary Accounting & Economics, Vol. 11, pp. 138-147.

Shackelford, D., and Shevlin, T. (2001), “Empirical tax research in accounting”, Journal of Accounting and Economics, Vol. 31, pp. 321-387.

Sikka, P. (2010), “Smoke and mirrors: corporate social responsibility and tax avoidance”, Accounting Forum, Vol. 34 No. 3, pp. 153-168.

Sikka, P. (2017), “Accounting and taxation: Conjoined twins or separate siblings?”, Accounting Forum, Vol. 41 No. 4, pp. 390-405.

Suzuki, M. (2014), “Corporate effective tax rates in Asian countries”, Japan and the World Economy, Vol. 29, pp. 1-17.

Tajaddini, R., and Gholipour, H. F. (2017), “National culture and default on mortgages”, International Review of Finance, Vol. 17 No. 1, pp. 107-133.

Tax Justice Network (2017), Financial Secrecy Index Ranking 2009, 2011, 2013, 2015



  • There are currently no refbacks.

"Journal Global Policy and Governance" ISSN online 2194-7740 / ISSN print 2194-7759

All publishing rigths reserved to © Transition Academia Press. Executive editor: Prof. Dr. Giorgio Dominese