Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance

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Title: Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance
Author: Hasan, Iftekhar ; Hoi, Chun-Keung (Stan) ; Wu, Qiang ; Zhang, Hao
Series: Journal of Accounting Research
Series volume: 55
Series number: 3 ; June
Year of publication: 2017
Publication date: 17.1.2017
Published in: BoF DP 21/2017
Page range: 629-668
Keywords: sosiaaliset verkostot; verotus; sosiaalinen pääoma; yritykset; veronkierto; Yhdysvallat; piirikunnat
JEL: A13; H26; M40; M41; Z13
Other keywords: social capital; social network; social norm; tax aggressiveness; tax avoidance
Abstract: We investigate whether the levels of social capital in U.S. counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative associations between social capital and corporate tax avoidance, as captured by effective tax rates and book-tax differences. These results are incremental to the effects of local religiosity and firm culture toward socially irresponsible activities. They are robust to using organ donation as an alternative social capital proxy and fixed effect regressions. They extend to aggressive tax avoidance practices. Additionally, we provide corroborating evidence using firms with headquarters relocation that changes the exposure to social capital. We conclude that social capital surrounding corporate headquarters provides environmental influences constraining corporate tax avoidance. Copyright ©, University of Chicago on behalf of the Accounting Research Center, 2016

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