To many students of corporate social responsibility, or CSR, Pfizer’s recent decision to move its headquarters to Ireland may have been perplexing.

According to an MSCI index that rates companies’ citizenship, Pfizer scores high in CSR, a status commonly thought to be at odds with aggressive tax avoidance. Yet Pfizer now plans to move from its longstanding base in the United States across the ocean for that very purpose.

AAA-LogoBut is Pfizer an exceptional case? Some new research suggests that it’s not. In the words of a study scheduled to be in the January issue of the American Accounting Association journal The Accounting Review, companies’ CSR ratings are “negatively related to five-year cash effective tax rates, and these results are driven by firms with high CSR.”

In other words, a higher rating in corporate social responsibility — which takes in such matters as community commitment, diversity, employee relations, environmental stewardship, and product safety and quality — is associated with lower taxes paid. More specifically, in a large sample of U.S. firms in which the effective tax rate averaged 26%, those ranked in the top fifth in CSR paid an average of 1.7 percentage points below what the remainder paid. In short, that’s about 6% less, after controlling for other differences that have been found to affect tax rates.

In addition, high-CSR firms were considerably more likely than others to engage in tax lobbying. According to the study, “firms in the highest quintile of CSR Index have approximately a 158% higher probability of lobbying for taxes than other firms.”

“Our findings are inconsistent with the notion that the U.S. corporate sector generally views paying the minimum in taxes as compromising integrity or good ethics,” says University of Oregon accounting professor David Guenther, a co-author of the study together with his colleagues Angela Davis and Linda Krull, as well as Brian Williams of Indiana University.

Guenther adds, “With countries competing in lowering corporate tax rates — the global average fell by almost 15% from 2006 to 2014 — it would be imprudent to view Pfizer’s move to a low-tax country as an anomaly. Perhaps some awareness of this explains the relatively mild response of U.S. policy-makers to this strategy.” Rather than implement harsh or restrictive measures, the policy-makers have tended to call for international tax reform, the professor notes.

(Democratic presidential candidate Hillary Clinton, though, has called for a crackdown on tax inversions like the one Pfizer is planning.)

At the same time, the study takes note of an episode not long ago in the United Kingdom, where a prominent member of Parliament chastised multinationals for, in her words, “using the letter of tax laws … to immorally minimize their tax obligations.” Following the rebuke, Starbucks promised to pay approximately 10 million pounds in each of the following two years, regardless of whether the company was profitable.

Such behavior led the new study’s authors to wonder whether “public pressure may mitigate the impact of tax rules on corporate investment decisions, at least for a subset of firms,” they wrote.

The researchers drew no conclusion as to what causes the inverse CSR-taxpaying relationship. One possibility is simply that “socially responsible firms may not consider the payment of corporate taxes to be the best means by which to accomplish their social-responsibility goals.”

Such companies may even believe that “paying taxes detracts from social welfare.” In that regard, the authors cited economic research that has “demonstrated that corporate taxes tend to decrease investment” or argues that “for-profit corporations are more efficient than governments in allocating resources.” The authors noted that “negative statements about corporate taxes in firms’ sustainability reports generally argue that high tax rates discourage innovation and investment and harm job creation, which limit firms’ ability to contribute to social welfare.”

A more cynical interpretation of the research’s findings, the authors acknowledged, is that firms “engage in CSR to create ‘moral capital’ to reduce the consequences of their involvement in negative events or publicity.” In other words, “firms strategically engage in CSR to create a more favorable reputation among various stakeholders and reduce the possibility of negative attention or regulatory action directed at aggressive tax practices.”

Whatever accounts for the lower taxes associated with higher CSR, the relationship emerges quite clearly from the professors’ analysis of information from large corporate databases over the 10-year period 2002 through 2011.

For each company in the sample, the professors analyzed the relationship between their citizenship rating in the MSCI index in a given year and their average effective tax rate (total of cash taxes paid divided by total pre-tax income less special items) for that year and the previous four years. For example, a company’s CSR rating in 2006 is compared with its effective tax rate from 2002 through 2006; its rating in 2007 is compared with its taxes from 2003 through 2007; and so on through 2011. In total, the analysis comprises 5,588 such observations.

As indicated, the professors found a significant negative relationship between firms’ CSR ratings and taxes paid, with the relationship driven by companies with high ratings. Firms in the lowest CSR quintile, in contrast, neither significantly exceed nor lag the rest of the sample in their tax rates.

Employing a similar methodology and drawing on data from the Center for Responsive Politics, the researchers also analyzed the relationship between companies’ effective tax rates over five-year spans and whether they engaged in tax lobbying. They found that “those firms that are more socially responsible are more likely to engage in tax lobbying. These results are economically significant because an increase from the 25th to 75th percentile of the CSR Index is associated with a 16.5% increase in the probability of tax lobbying, and firms in the highest quintile of the CSR index have approximately a 158% higher probability of [tax] lobbying than other firms.”

(Editor’s note: the index that the researchers used for CSR ratings, MSCI ESG KLD STATS, is available only for academic research and typically accessed through the widely used Wharton Research Data Service.)

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