Environmental, social, and governance (ESG) disclosure and its impact on effective tax rate (ETR) in Malaysia

  • Abstract
  • Keywords
  • References
  • PDF
  • Abstract

    The disclosure of Environmental, Social, and Governance (ESG) practices has become the most recent trend in providing non-financial information regarding Corporate Social Responsibility (CSR) activities of the companies. There are many benefits associated with ESG disclosure including tax burdens reduction through the utilization of tax incentives, which resulting in low Effective Tax Rates (ETRs). In Malaysia, the ESG Index has been launched by Bursa Malaysia in December 2014 to measure the performance of Public Listed Companies (PLCs) demonstrating strong ESG practices. Therefore, the current study aims to examine the level of ESG disclosure among PLCs in Malaysia and its possible effect on ETR. The data from 34 PLCs in Malaysia has been gathered and analyzed using the descriptive, correlation, and regression analysis. Results found that all three dimensions of ESG disclosure are negatively correlated with ETR whereby only environmental disclosure significantly affect ETR. Thus, PLCs would benefit most from the environmental programmes in the form of tax savings, while low ETRs indicate the existence of aggressive tax planning activities.


  • Keywords

    Corporate Social Responsibility; Effective Tax Rates; Environmental; Social; and Governance (ESG).

  • References

      [1] Amran, A., Rosli, A. M., & Hassan, C. H. M. (2008). Risk reporting: An exploratory study on risk management disclosure in Malaysian annual reports. Managerial Auditing Journal, 24(1), 39-57.

      [2] Atan, R., Razali, F. A., Said, J., & Zainun, S. (2016). Environmental, Social and Governance (ESG) Disclosure and Its Effect on Firm’s Performance: A Comparative Study. International Journal of Economics and Management, 10 (S2): 355 – 375.

      [3] Bernama. (2014). Bursa unveils Environmental, Social and Governance Index. Retrieved May 10th, 2017, from http://www.thestar.com.my/business/business-news/2014/12/23/bursa-unveils-environmental-social-and-governance-index.

      [4] Bernama. (2015). Bursa Malaysia adds 10 FTSE4Good constituents. Retrieved May 10th, 2017, from http://www.thestar.com.my/business/business-news/2015/12/14/bursa-malaysia-adds-more-ftse4good-constituents.

      [5] Christensen, J., & Murphy, R. (2004). The social irresponsibility of corporate tax avoidance: Taking CSR to the bottom line. Development, 47(3), 37-44.

      [6] Dowling, G. (2014). The curious case of corporate tax avoidance: Is it socially irresponsible? Journal of Business Ethics, 124(1), 173-184. Doi: 10.1007/s10551-013-1862-4.

      [7] Eccles, R. G., Serafeim, G., & Krzus, M. P. (2011). Market interest in nonfinancial information. Journal of Applied Corporate Finance, 23(4), 113-127.

      [8] Exter, N., Cunha, S., & Turner, C. (2011). The business case for being a responsible business. Retrieved May 10th, 2017, from https://dspace.lib.cranfield.ac.uk/bitstream/1826/8298/1/The_business_case.pdf.

      [9] Fisher, J. M. (2014). Fairer shores: Tax havens, tax avoidance, and corporate social responsibility. BUL Rev., 94, 337.Garcia, J. L. (2014). The influence of corporate social responsibility on lobbying effectiveness: Evidence from effective tax rates. (Doctoral dissertation, Virginia Polytechnic Institute and State University).

      [10] Freeman, R. E., & Reed, D. L. (1983). Stockholders and stakeholders: A new perspective on corporate governance. California management review, 25(3), 88-106.

      [11] Hair, J. F., Sarstedt, M., Hopkins, L., & Kuppelwieser, V. G. (2014). Partial least squares structural equation modeling (PLS-SEM) An emerging tool in business research. European Business Review, 26(2), 106-121.

      [12] Hinkle, Wiersma, & Jurs. (1998). Guidelines for interpreting correlation coefficients. (p.105).

      [13] Hoi, C. K., Wu, Q., & Zhang, H. (2013). Is corporate social responsibility (CSR) associated with tax avoidance? Evidence from irresponsible CSR activities. The Accounting Review, 88(6), 2025-2059.

      [14] Hope, O.-K., Ma, M. S., & Thomas, W. B. (2013). Tax avoidance and geographic earnings disclosure. Journal of Accounting and Economics, 56(2), 170-189.

      [15] Huseynov, F., & Klamm, B. K. (2012). Tax avoidance, tax management and corporate social responsibility. Journal of Corporate Finance, 18(4), 804-827.

      [16] Kweh, Q. L., Alrazi, B., Chan, Y. C., Abdullah, W. M. T. W., & Lee, R. M. A. (2017). Environmental, Social and Governance and the Efficiency of Government-linked Companies in Malaysia. Institutions and Economies, 9(2).

      [17] Laguir, I., Staglianò, R., & Elbaz, J. (2015). Does corporate social responsibility affect corporate tax aggressiveness? Journal of Cleaner Production, 107, 662-675.

      [18] Lanis, R., & Richardson, G. (2012). Corporate social responsibility and tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 31(1), 86-108.

      [19] Nollet, J., Filis, G., & Mitrokostas, E. (2016). Corporate social responsibility and financial performance: A non-linear and disaggregated approach. Economic Modelling, 52, 400-407.

      [20] Noor, R. M., Mastuki, N. A., & Bardai, B. (2008). Corporate effective tax rates: A study on Malaysian public listed companies. Malaysian Accounting Review, 7 (1).

      [21] Rego, S. O. (2003). Tax‐Avoidance Activities of US Multinational Corporations*. Contemporary Accounting Research, 20(4), 805-833.

      [22] Renselaar, J. V. (2016). The influence of corporate social responsibility on the level of corporate tax avoidance.

      [23] Tarmuji, I., Maelah, R., & Tarmuji, N. H. (2016). The Impact of Environmental, Social and Governance Practices (ESG) on Economic Performance: Evidence from ESG Score. International Journal of Trade, Economics and Finance, 7(3), 67.




Article ID: 29298
DOI: 10.14419/ijet.v7i3.35.29298

Copyright © 2012-2015 Science Publishing Corporation Inc. All rights reserved.