The effect of business ethics and governance score on tax avoidance: a European perspective

Abstract

Purpose The purpose of this study is to examine the effect of business ethics and governance score on tax avoidance. Design/methodology/approach The sample used consists of 432 European companies belonging to the STOXX600 index during the period ranging from 2010 to 2019. The authors use the linear regression with a panel data. Findings The results show a negative and significant relationship between business ethics and tax avoidance. In addition, the governance is negatively and significantly correlated with tax avoidance. Similarly, this paper finds a negative and significant joint impact of business ethics and governance score on tax avoidance. Practical implications The findings of this paper could help firms consider their future growth opportunities in a context where the approach of business ethics occupies a central position in the business valuation. Originality/value This study is motivated by the low number of works in the context of the tax avoidance. It makes an important contribution to the academic literature through adding to the limited body of research on business ethics and governance score in a company setting. The firms strongly focusing on ethics and governance score are more likely to reduce their tax avoidance activities. Thus, these corporations aim to preserve their reputation and image. In this regard, it is worth saying that a positive reputation can increase the shareholder value. Accordingly, companies find a powerful strategy in their commitment and their ethical and responsible behavior, allowing them to maintain their good image and reputation.