The moderating effect of cit avoidance in the relationship between esg disclosure and firm performance: Empirical evidence from listed companies within southeast asian region

Abstract

The research discovers the role of corporate income tax avoidance (CIT avoidance) in the relationship between environmental, social and governance disclosure (ESG disclosure) and firm performance (FP). Data were collected from 70 listed companies within Southeast Asia over the period 2014–2023, mainly from Refinitiv Eikon and annual reports. Feasible generalized least squares (FGLS) regression was applied to address important problems of correlation and method variance in the model. These findings discover that ESG disclosure has a positive impact on FP, reflecting the increasing value of sustainability activities in improving FP. However, CIT avoidance appears to be a factor that decreases this positive relationship. While CIT avoidance strategies may provide short-term benefits through significant tax reductions, these benefits often come at the expense of ethical and moral turpitude. As a result, firms that adopt CIT avoidance strategies might not be able to obtain the long-term reputational and financial benefits associated with ESG performance. The research emphasizes the significance of aligning tax strategies with sustainability objectives and suggests that firms should prioritize ethical practices to maximize profits and maintain stakeholder trust. This research provides significant insights for business leaders, policymakers, and investors in balancing FP with sustainable, ethical practices in a globally competitive environment.