Corporate ethics and tax avoidance: the mediating role of good corporate governance

Abstract

Purpose This study aims to empirically validate the impact of corporate ethics on the level of tax avoidance through its effect on good corporate governance (GCG). Design/methodology/approach To test their hypothesis, the authors rely on a sample of 139 French companies over the period 2017–2019. The authors use the Thomson Reuters ESG ASSET4 database. They follow the approach of Baron and Kenney (1986). Findings The results show that corporate ethics has a negative and significant impact on tax avoidance within the sample firms. Furthermore, the authors empirically validate the mediating effect of GCG on the relationship between tax avoidance and corporate ethics. The results also lead to full mediation, as the direct effect of corporate ethics on tax avoidance disappears after controlling for its effect on GCG. Practical implications The findings show that business ethics and effective governance work synergistically to reduce tax avoidance while improving business performance and resilience. By integrating these elements, companies can balance profitability, regulatory compliance and social responsibility. Originality/value First, this study provides new empirical evidence to explain the mixed findings of previous research on the effect of corporate social responsibility on tax avoidance. Indeed, it highlights the significant impact of the ethical dimension on firms’ tax avoidance behavior. Second, this research helps to highlight the mediating effect of good governance in explaining how corporate ethics could affect tax avoidance practices. The result is intended to enrich the existing accounting literature considering the scarcity of relevant studies that validate such an indirect relationship.

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