The Impact of Corporate ESG Management on Tax Avoidance: A Comparative Study of State-Owned and Non-State-Owned Enterprises

Abstract

ESG management is considered a core element for a company’s sustainable development, whereas tax avoidance (TA) is regarded as an important strategy for increasing corporate profits. In the case of China, a socialist country, this study aims to examine the impact of ESG management on tax avoidance, distinguishing between state-owned enterprises (SOEs), which are operated under government policies, and non-state-owned enterprises (non-SOEs), which follow the real economy. Using a total of 18,195 firm-year observations of A-share companies listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2011 to 2022, the analysis was conducted. The ESG management index was obtained from the Shanghai Huazheng Database, and the financial statement data were extracted from the WIND Database and CSMAR (China Stock Market & Accounting Research). The empirical results are as follows. First, ESG management in SOEs shows a negative but statistically insignificant relationship with tax avoidance (DDBTD), whereas ESG management in non-SOEs has a statistically significant negative effect on tax avoidance (DDBTD) at the 1% level. Second, for both SOEs and non-SOEs, the environmental activity index (ENV) and social responsibility index (SOC), which are sub-evaluation indicators, have a statistically significant negative effect on tax avoidance (DDBTD). In the case of SOEs, the relationship between ESG management and tax avoidance appears to be irrelevant. This is likely because SOEs, as enterprises in which the government invests or participates in control, generally enjoy more government support and subsidies, maintain stability, and have advantageous access to resources, thus making ESG management less influential on tax avoidance behavior.