Environmental, Social, and Governance (ESG) Performance and Corporate Tax Planning Behaviour in Developing Economies: Evidence from Transparency Incentives
DOI:
https://doi.org/10.14738/abr.1408.12085Keywords:
ESG Performance, Corporate Tax Avoidance, Corporate Governance, Sustainable Finance, Developing EconomiesAbstract
Purpose: This study examines whether corporate Environmental, Social and Governance (ESG) performance is associated with tax avoidance behaviour among listed firms in African markets. It focuses on institutional environments where enforcement capacity, stakeholder pressure, and governance quality differ from those in developed economies. Design/methodology/approach: Using a balanced panel of 82 manufacturing firms per year from the Nigerian and Egyptian stock exchanges over five years (410 firm-year observations), the study analyses firms with December fiscal year-ends and positive taxable income. ESG data are obtained from Bloomberg, while financial data are sourced from stock exchange disclosures and international databases. Tax avoidance is measured using the Desai and Dharmapala (2006) residual-based book–tax difference model. Pooled ordinary least squares, random-effects, and firm fixed-effects regressions are employed, with robustness checks using cash effective tax rates. Findings: Aggregate ESG performance is positively associated with tax avoidance in pooled regressions; however, the relationship becomes statistically insignificant under firm fixed-effects estimation, suggesting no causal effect at the aggregate level. Disaggregated analysis shows that the social dimension of ESG is positively associated with tax avoidance, particularly among well-governed firms, while environmental and governance dimensions are not significantly related to tax avoidance. Originality: The study provides new evidence from underexplored African markets and highlights how ESG engagement may coexist with tax avoidance as part of broader value-maximizing strategies.
References
Abdelfattah, T., & Aboud, A. (2020). Tax avoidance, corporate governance, and corporate social responsibility: The case of the Egyptian capital market. Journal of International Accounting, Auditing and Taxation, 38, 100304. https://doi. org/10.1016/j.intaccaudtax.2020.100304
Alessa, N., Akparep, J. Y., Sulemana, I., & Agyemang, A. O. (2024). Does stakeholder pressure influence firms environmental, social and governance (ESG) disclosure? Evidence from Ghana. Cogent Business & Management, 11(1), 2303790. https://doi.org/10.1080/23311975.2024.2303790
Almutairi, A. M. (2024). The impact of CSR on tax avoidance: The moderating role of political connections. Sustainability, 17(1), Article 195. Access at: https://www.mdpi.com/2071-1050/17/1/195. MDPI
Alomair, M., . (2025). Does ESG disclosure matter for the tax avoidance–firm value relationship? Sustainability, 17(9), Article 3836. Access at: https://www.mdpi.com/2071-1050/17/9/3836. MDPI
Bayar, O., Huseynov, F., & Sardarli, S. (2018). Corporate governance, Tax avoidance, and financial constraints. Financial Management, 47(3), 651–677. http://doi.org/10.1111/fima. 12208
Bloomberg. (2021). Governance Scores: analyze governance risk and opportunity. A Bloomberg professional services offering. Bloomberg.com/esg. https://data.bloomberglp.com/professional/sites/10/Governance-Scores-Fact-sheet.pdf
El Ghoul, S., . (2025). Tax avoidance and ESG disclosure mandates. SSRN Working Paper. Access at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5535481. SSRN Gulzar, M. A., Cherian, J., Sial, M. S., Badulescu, A., Thu, P. A., Badulescu, D., & Khuong, N. V. (2018). Does corporate social responsibility influence corporate tax avoidance of Chinese listed companies? Sustainability, 10(12), 4549. https://doi.org/10.3390/su10124549
Hai, M., Fang, Z., & Li, Z. (2022). Does business group’s conscious of social responsibility enhance its investment efficiency? Evidence from ESG disclosure of China’s listed companies. Sustainability, 14(8), 4817. https://doi.org/10. 3390/su14084817
Ivanda, M. N. M. (2024). CSR’s role in tax avoidance: Impact of financial performance and green accounting. Conference paper / journal preprint. Access at: https://pdfs.semanticscholar.org/70ad/55e27021188d4395b82b78a9e4f1126a3e5f.pdf. Semantic Scholar
Jiang, H. (2024). Does ESG performance affect corporate tax avoidance? Journal of Corporate Accounting and Finance. Advance online publication. Access at: https://www.sciencedirect.com/science/article/abs/pii/S1544612324000862. ScienceDirect
Khan, N. (2022). Corporate governance, tax avoidance, and CSR disclosure: Evidence from Nigeria and Pakistan. Cogent Business & Management, 9(1). Access at: https://www.tandfonline.com/doi/full/10.1080/23322039.2022.2080898. Taylor & Francis Online
Kiang, H., Hu, W., & Jiang, P. (2024). Does ESG performance affect corporate tax avoidance? Evidence from China. Finance Research Letters, 61, 105056. https://doi.org/10.1016/j.frl.2024.105056
Khanchel, I., & Lassoued, N. (2023). Are small waves fondle and big waves overturn? Market reaction and corporate governance during four COVID-19 waves. Review of Behavioral Finance, 16(2), 300–321. https://doi.org/10.1108/RBF-02-2023-0054
Page | 68 Scholar Publishing Kovermann, J., & Velte, P. (2021). CSR and tax avoidance: A review of empirical research. Corporate Ownership & Control, 18(2), 1–18. Access at: https://virtusinterpress.org/IMG/pdf/cocv18i2art2.pdf. Virtus Inter Press
Lee, E., (2025). The effect of corporate ESG management on tax benefits and corporate performance (South Korea). Journal of Sustainability Research. Access at: https://sustainability.hapres.com/htmls/JSR_1797_Detail.html. sustainability.hapres.com
Lee, H. A. (2024). Exploring the relationship between environmental, social and governance and tax avoidance. SAGE Open, advance online. Access at: https://journals.sagepub.com/doi/10.1177/21582440241298089. SAGE Journals
Metwally, A. B. M. (2025). Board characteristics and tax avoidance: the moderating role of governance. Heliyon / Regional Journal. Access at: https://www.tandfonline.com/doi/full/10.1080/23311975.2025.2588063. Taylor & Francis Online
Montoya, K., (2024). Corporate tax disclosure and CSR reporting in developing countries: Evidence from Africa. International Journal of Economics, Commerce and Management. Access at: https://ijecm.co.uk/wp-content/uploads/2023/04/1144.pdf. ijecm.co.uk
Morris, W., & Visser, E. (2022). Tax is a crucial part of the ESG conversation. Tax research & insights. PWC. https://www. pwc.com/gx/en/services/tax/publications/tax-is-a-crucialpart-of-esgreporting.html
Ohrn, E. (2018). The effect of corporate taxation on investment and financial policy: Evidence from the DPAD. American Economic Journal: Economic Policy, 10(2), 272–301. http://doi.org/10.1257/pol.20150378
Rahman, J. (2021). Focus on tax avoidance and financial ratio analysis. SSRN. Access at: https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID3773360_code2267608.pdf?abstractid=3773360.SSRN
Salah, A., Achour, Z., & Boussaada, R. (2023). Impact of corporate social responsibility on tax avoidance: Evidence from French companies. American Journal of Finance and Accounting, 7(3–4), 235–257. https://doi.org/10.1504/AJFA. 2023.13669
Sturgis, V. (2022). ESG and taxation: A necessary part of a company’s strategic objectives. Tax Insider Newsletter. The Tax Advisor. https://www.thetaxadviser.com/newsletters/ 2022/oct/esgand-taxation-necessary-part-of-companys-strategic-objectives.html
Xu, S. (2022). Corporate tax avoidance and corporate social responsibility reporting readability: Evidence from China. Australian Accounting Review, 32(2), 267–289. Access at: https://ideas.repec.org/a/bla/ausact/v32y2022i2p267-289.html. IDEAS/RePEc
Yoon, B., Lee, J. H., & Cho, J. H. (2021). The effect of ESG performance on tax avoidance— Evidence from Korea. Sustainability, 13(12), 6729. https://doi.org/10.3390/su13126729
Zhang, W., Luo, Q., & Liu, S. (2022). Is government regulation a push for corporate environmental performance? Evidence from China. Economic Analysis and Policy, 74, 105–121. https://doi.org/10.1016/j.eap.2022.01.018
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Oluwatoyin Abayomi Amuda
This work is licensed under a Creative Commons Attribution 4.0 International License.
