Journal of Cleaner Production 133 (2016) 1337e1351

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Taboo or technical issue? An empirical assessment of taxation in

sustainability reports
Inga Hardeck a, *, Tanja Kirn b
a
European University Viadrina, Faculty of Business Administration and Economics, Große Scharrnstr. 59, 15230 Frankfurt (Oder), Germany
b
University of Liechtenstein, Institute for Financial Services, Fürst-Franz-Josef-Strasse, 9490 Vaduz, Liechtenstein

a r t i c l e i n f o a b s t r a c t

Article history: Prior literature offers mixed evidence on the existence of a link between corporate taxation and corporate
Received 16 January 2016 social responsibility (CSR). This article contributes to this debate by examining the level of tax disclosure in
Received in revised form sustainability reports by firms listed in the United States, the United Kingdom, and Germany from 2007 to
4 June 2016
2012. The aim is to offer micro-level evidence of whether firms themselves perceive corporate tax pay-
Accepted 4 June 2016
Available online 14 June 2016
ments as being part of their CSR. On the basis of a hand-collected 540-firm-year dataset of ninety publicly
listed firms, the article shows that the level of tax disclosure was rather low. However, it did increase over
time and was most prevalent in the United Kingdom. Moreover, the reports indicate considerable variation
JEL classification code:
M21
in attitudes toward taxation. Overall, the widespread silence on tax issues and a non-uniform treatment of
taxation in sustainability reports underline the complex role of tax payments when it comes to CSR.
Keywords: Examination of determinants of disclosure shows that firms with lower effective tax rates, negative media
Corporate social responsibility coverage in tax matters, and industry-specific stakeholder pressure were generally more inclined to
Sustainability reporting disclose tax information, which is in line with predictions based on stakeholder and legitimacy theory.
Taxes
Finally, the article discusses the importance of cultural and social norms when it comes to tax-related
Tax aggressiveness
sustainability reporting and provides theoretical as well as regulatory implications.
© 2016 Elsevier Ltd. All rights reserved.

1. Introduction aggressiveness significantly reduces national tax revenue that

Dowling (2014, p. 173) states that corporate social responsibility
(CSR) scholars have been silent on the issue of corporate tax pay-
ments even though “tax payments are often considered a funda-
mental (…) example of a company's citizenship behavior.” Although
conceptual literature on corporate taxation and CSR is on the rise,
there are disagreements on the existence of a link between both (Avi-
Yonah, 2008; Hasseldine and Morris, 2013; Sikka, 2010; Timonen,
2008). Against this background, this research investigates what
kind of and how much tax information firms voluntarily disclose in
their sustainability reports as well as the determinants of disclosure.
Most research has focused on discussing whether tax aggres-
siveness1 can be considered socially irresponsible. Tax
* Corresponding author.
E-mail addresses: hardeck@europa-uni.de (I. Hardeck), tanja.kirn@uni.li
(T. Kirn).
1 Accordingly, one research stream indicates that tax-aggressive
In line with existing empirical tax research (e.g., Laguir et al., 2015; Lanis and
Richardson, 2012a), tax aggressiveness is defined as encompassing all tax plan-
ning activities that reduce the companies' tax burden. For instance, these activities
can be legal or fall into the gray areas of law. According to Hanlon and Heitzman
(2010), tax aggressiveness can be used interchangeably with the term “tax
avoidance.”
could otherwise be spent on public services such as social services,
healthcare, education, and infrastructure (e.g., Avi-Yonah, 2008;
Friese et al., 2008; Sikka, 2010). This is a crucial point in devel-
oping countries because of the role of taxes in local governments'
ability to provide public goods and reduce poverty (Muller and
Kolk, 2015). Even though all for-profit corporations are liable to
tax and corporations from the same country are subject to the same
tax code, prior empirical research shows thatdat least for the
USdlong-term effective tax rates (ETRs) vary widely among cor-
porations from the same country and within the same industry
(Dyreng et al., 2008). Apparently, some corporations are very effi-
cient in avoiding taxes, for instance, by shifting profits to low-tax
countries (Markle and Shackelford, 2011). Owing to the decreased
power of national legislators, tax authorities are struggling to
prevent large multinational firms from avoiding taxes (e.g.,
Christensen and Murphy, 2004; Doyle and Bendell, 2009).
firms are socially irresponsible and maintains that corporations
should not use all legal possibilities of tax avoidance. By contrast,
Friedman (1970) argues that stakeholders might prefer a company
to focus on maximizing its profits by minimizing its tax payments

http://dx.doi.org/10.1016/j.jclepro.2016.06.028
0959-6526/© 2016 Elsevier Ltd. All rights reserved.
1338 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351
to ensure its competitiveness and long-term viability. Other re-
searchers claim that keeping resources in the private sector results
in benefits to society because the private sector utilizes resources
more efficiently than the public sector (Davis et al., 2016; McGee,
2010).
Quantitative empirical research mainly finds a negative associ-
ation between tax aggressiveness and CSR performance, which
suggests that socially responsible corporations are less tax-
aggressive (e.g., Lanis and Richardson, 2012a, 2015; Muller and
Kolk, 2015). Davis et al. (2016) discovered the opposite relation-
ship. However, the samples and operationalization of CSR perfor-
mance and tax aggressiveness differ considerably among these
studies. Laguir et al. (2015) were one of the first research groups to
analyze the relationship between tax aggressiveness and different
dimensions of CSR instead of an aggregated CSR measure. Using a
sample of French firms, they found that the greater the activity in
the social dimension of CSR, the lower the level of tax aggressive-
ness. By contrast, they detected a positive relationship between the
economic dimension and the level of tax aggressiveness.
With this in mind, examining how corporations themselves
discuss taxation and CSR in their communication could provide
valuable insight. However, empirical evidence on tax-related sus-
€ nen
tainability reporting is rare. Existing single case studies (e.g., Ylo
and Laine, 2015) and limited quantitative studies (Davis et al., 2016;
Hardeck, 2012) suggest an absence of in-depth information on
taxation from sustainability reporting. Following the idea of
discourse analysis (Fairclough, 1992; Han Onn and Woodley, 2014;
Phillips and Hardy, 2002), corporations' tax disclosure affects
society's understanding of taxation and how society reacts to it
€ nen and Laine, 2015). Accordingly, corporations could use their
(Ylo
disclosure to create a link between their tax payments and their
CSR. Alternatively, they might consciously refrain from disclosing
tax information in their sustainability reports, for example, to
negate a link between corporate taxation and CSR. Against this
background, this research assesses what kind of and how much tax
information corporations disclose. Moreover, to better understand
the drivers of voluntary tax disclosure, it investigates its internal
(e.g., level of tax aggressiveness) and external determinants (e.g.,
industry, country of origin).
For the analysis, firms were chosen from three Western coun-
tries with the highest gross domestic product, namely, the United
States (US), Germany, and the United Kingdom (UK). Prior research
highlights that sustainability reporting levels can vary on account
of different cultural and social norms or governmental regulations
(e.g., Kolk, 2010; Orij, 2010; Van der Laan Smith et al., 2005). For
instance, Kolk (2010) shows that the largest UK firms have the
highest frequency of sustainability reporting, whereas compara-
tively few US firms disclose CSR information and these corporations
report rather inconsistently. Germany's reporting level lies be-
tween those countries. Chen and Bouvain (2009) found that there
are still significant national differences in terms of the importance
of different CSR issues despite the increasing global standardization
of CSR.
Besides sustainability reporting in general, the way managers
and other stakeholders regard taxes in the context of CSR might
differ across countries (Davis et al., 2016). Anecdotal evidence in-
dicates that UK politicians often emphasize the social irresponsi-
bility of tax aggressiveness. For instance, in hearings with
multinational firms that legally avoided taxes in the UK, the Public
Accounts Committee Chairwoman Margaret Hodge claimed (BBC,
2012): “We're not accusing you of being illegal, we're accusing
you of being immoral.” Moreover, media and non-governmental
organizations consistently report on corporate tax aggressiveness
in the UK. By contrast, the US public has shifted its expectations for
solving social issues from the government to business (Carroll,
2001). Lantos (2001) claims that “CSR is favored over government
welfare in that the aid is voluntarily, more personally, and perhaps
more efficiently bestowed, whereas state contributions come via
the inefficiency and plodding pace of government bureaucracy and
legislators through faceless bureaucrats.” Davis et al. (2016) pro-
vided some empirical evidence for this reasoning and concluded
that, at least for US public corporations, the payment of taxes is not
perceived as an important socially responsible activity by an
influential subset of firms' stakeholders. Compared to the US,
Germany has a strong welfare state and society agrees on the
importance of tax payments to provide social services. However,
there is a widespread tendency to insist on a restrictive application
and a narrow interpretation of the tax law (Scho € n, 2008). Aca-
demics emphasize that tax payments are based exclusively on the
tax laws and not on the tax authorities' or stakeholders' moral
judgments (Jacobs, 2016). Additionally, Germany has a strong tax
secrecy regulation (Art. 30 of the German Fiscal Code). Prior
research suggests a general predilection for secrecy in German
national culture. For instance, Hope et al. (2008) developed a
measure of secrecy in nations that is derived from Hofstede's na-
tional culture dimensions. On the basis of this measure of secrecy,
Germany has a much higher score than the UK and the US.2
Nevertheless, all three countries faced similar governmental
regulations during the examination period. Whereas sustainability
reporting is voluntary, there were comparable standards for tax-
related disclosure obligations in annual reports according to IAS
12 or FAS 109. Hence, investigating the level of tax disclosure in the
sustainability reports of firms from different countries can offer
further insight into different cultural and social norms.
The purpose of the study is twofold. First, it aimed to analyze
what kind of and how much tax information is actually disclosed in
sustainability reports. Therefore, a systematic analysis was con-
ducted of sustainability reports of ninety publicly listed firms from
the UK, the US, and Germany over a six-year period (2007e2012).
Second, it examined in which context corporations disclose tax
information (i.e., potential determinants of disclosure). When it
comes to explaining the level of sustainability reporting, prior
research provides two competing theories (Clarkson et al., 2008,
2011). Socio-political theories and legitimacy theory (Deegan,
2002) in particular suggest that companies that have failed to
fulfill societal expectations in tax mattersdfor instance, firms that
are suspected of tax aggressivenessdare more likely to disclose tax
information in their sustainability reports. Anecdotal evidence
supports this notion. For instance, the British bank HSBC (2012, p. 7)
states in its sustainability report: “Following requests from share-
holders and non-governmental organisations (…) for more trans-
parent data on taxation, we have provided a breakdown of our tax
payments by country for our priority markets in (…) this report.” By
contrast, economics-based voluntary disclosure theories (Dye,
1985; Verrecchia, 1983) suggest that companies that pay “their
fair share of taxes” are more inclined to disclose information. The
present research tested these different hypotheses.
The findings suggest that the number of reporting companies
increased significantly from 47% in 2007 to 59% in 2012. This
growth was mostly due to increasing disclosures by corporations
listed in the UK, which had the highest level of reporting by far.
With regard to the determinants, this analysis supports the as-
sumptions derived from socio-political theories that firms with
lower ETRs, negative media coverage in tax matters, and affiliation
with the extractive and high-tech sector have a higher disclosure
2
According to Hope et al. (2008), the measure of secrecy is calculated by adding
uncertainty avoidance and power distance and subtracting individualism. Germany
has a score of 33, the US e5, and the US e19.
 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351
level. Companies with negative media coverage in tax matters
tended to have a higher reporting level than those without negative
press. Extractive and high-tech companies had a significantly
higher reporting level than other industries. Nevertheless, lower
commitments to a socially responsible approach to taxes in the
financial industry corresponded with what voluntary disclosure
theories would predict.
The remainder of this article is organized as follows. First, it
presents a brief review of the relevant literature that deals with
taxes and sustainability reporting. It then derives and presents
hypotheses about determinants of tax disclosure. Next, the
methods and empirical results are explained. The article concludes
with a summary of the findings, a discussion of their implications,
limitations, and possible directions for further research.
2. Conceptual framework
A sustainability report is a voluntary report published by a
company or organization about the economic, environmental, and
social impacts caused by its everyday activities (e.g., GRI, 2013a).
Multiple global initiatives and institutions regard corporate tax
payments as a CSR issue and lobby for an integration of tax infor-
mation in companies' sustainability reports. The GRI guidelines
(GRI, 2013a) suggest that paying corporate income taxes improves
public welfare. They require companies to disclose their tax pay-
ments in detail in their sustainability reports (GRI, 2013a). How-
ever, one of the GRI's main principles when preparing a
sustainability report is materiality (GRI, 2013b), that is, firms should
focus on those aspects that reflect the organization's significant
economic, environmental, and social impacts or those that sub-
stantively influence the assessments and decisions of stakeholders.
The Commission of the European Union (EU) (2011, p. 11) “en-
courages enterprises to disclose information related to the imple-
mentation of good tax governance standards” to enable investors to
integrate non-financial information into their investment de-
cisions. The OECD Guidelines for Multinational Enterprises
recommend that companies be transparent in tax issues (OECD,
2011; chapter XI). The Extractive Industries Transparency Initia-
tive (EITI) supports tax transparency in the extractive sector.
Prior research has extensively studied the content of sustain-
ability reports (e.g., Hahn and Kühnen, 2013). However, only a small
amount of empirical literature has investigated the role of taxes in
sustainability reporting. Ylo€ nen and Laine (2015) conducted a sin-
gle case study in which they compared the actual tax strategy of a
Finnish corporation with its firm disclosure over a ten-year period.
They found limited disclosures on taxation and a significant
discrepancy between the firm's commitments and its actions.
Hardeck (2012) empirically examined the relevance of taxes in the
sustainability reports of corporations listed in the US, the UK, and
Germany for the reporting year 2009. She showed that 54.4% of
these corporations disclosed tax information in their reports in
2009. Univariate statistics demonstrate that companies that have
been the object of negative media coverage in tax matters tend to
disclose more information. Davis et al. (2016) reviewed a sample of
forty sustainability reports from US firms. They found that 47.5% did
not report any tax information at all. In addition, these researchers
offered anecdotal evidence of tax disclosures and presented ex-
amples of negative and positive statements about taxes. They
concluded that there seems to be a lack of any uniform treatment of
information on corporate tax payments in sustainability reports.
Kolk and Lenfant (2010) analyzed sustainability reporting by
multinational companies operating in Central Africa. Using a sam-
ple of 54 companies, they found that the majority (58%) reported on
taxes and royalties paid. Finally, some accountancy firms (e.g., PwC,
2008; SustAinability, 2006) have studied sustainability reports,
1339
particularly in Europe, with regard to the role of taxes. These re-
ports provide examples of best practices.
2.1. Disclosure theories
Both mandatory and voluntary tax disclosure are potentially
costly. When it comes to voluntary tax disclosure, potential costs
can be split into information production costs (compliance costs)
and proprietary costs (Verrecchia, 1983). High information pro-
duction costs might result from organizational restrictions, such as
missing data or a lack of communication between the tax and the
CSR department (SustAinability, 2006; Williams, 2007). Proprietary
costs (Verrecchia, 1983) arise because of the sensitivity and confi-
dentiality of tax information. Competitors or tax authorities might
use this information to the detriment of the firm (Williams, 2007).
Because of the complexity of tax law, firms risk that their stake-
holders, such as media or non-governmental organizations, will
misinterpret the data.
Even though disclosure is potentially costly (Verrecchia, 1983),
managers make voluntary disclosures for various reasons. Prior
research uses two opposing groups of theories to explain the level
of voluntary disclosure in sustainability reports: economics-based
voluntary disclosure theories and socio-political theories
(Clarkson et al., 2008, 2011).
Voluntary disclosure literature suggests that companies have
incentives to disclose positive information to differentiate them-
selves from companies with negative information to avoid the
adverse selection problem (Dye, 1985; Verrecchia, 1983). This the-
ory can be applied to CSR information as well (Clarkson et al., 2008;
Li et al., 1997). Companies that suspect that their tax information
might evoke perceptions of social irresponsibility among their
stakeholders might therefore refrain from disclosing information in
order to avoid the political costs. However, companies that assume
that their tax information is likely to foster positive perceptions of
company tax behavior as a manifestation of good corporate citi-
zenship have incentives to disclose tax information and to inform
their stakeholders.
Most of the research on sustainability reporting is based on
socio-political theories (Gray et al., 1995). Recently, socio-political
theories have been used to explain the association between tax
aggressiveness and CSR activities (Laguir et al., 2015; Lanis and
Richardson, 2012a, 2012b). Two overlapping socio-political the-
ories in particular are applied: stakeholder theory and legitimacy
theory. Freeman (2010) defines a stakeholder as “any group or in-
dividual who can affect or is affected by the achievement of the
firm's objectives.” Stakeholders of the firm include, for example,
shareholders, creditors, employees, customers, suppliers, public
interest groups, and governmental bodies. A major role of com-
panies is to assess the importance of meeting stakeholder demands
to achieve the strategic objectives of the firm (Freeman, 2010).
Ullmann (1985) offers a conceptual model that explains CSR ac-
tivities in a stakeholder framework. Cultivating a corporate repu-
tation for being socially responsible by performing and disclosing
CSR activities can be part of a strategic plan for managing stake-
holder relationships (Roberts, 1992). In doing so, the company
tends to disclose CSR information that is relevant from its stake-
holders' perspective (e.g., Boesso and Kumar, 2007; GRI, 2013b),
especially from the perspective of those stakeholders who are
important from the company's point of view.
As concerns legitimacy theory, Suchman (1995, p. 574) defines
legitimacy as “a generalized perception or assumption that the
actions of an entity are desirable, proper, or appropriate within
some socially constructed system of norms, values, beliefs, and
definitions.” Companies that fail to fulfill societal expectations lose
social legitimacy and evoke negative perceptions among their
1340 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351
stakeholders (Aguilera et al., 2007). According to legitimacy theory,
companies whose legitimacy is threatened have incentives to
disclose information to preserve or regain their legitimacy (Deegan,
2002). The use of impression management (Hahn and Kühnen,
2013; Hooghiemstra, 2000; Stacchezzini et al., 2016) is closely
related to legitimacy theory. Impression management is concerned
with a firm's self-presentation with the purpose of creating a
favorable image (Hooghiemstra, 2000). When it comes to sustain-
ability reporting, impression management might be particularly
relevant should a corporation be faced with a negative event. By
using impression management, the corporation can effectively
react to such threats to its legitimacy. For instance, the respective
corporation can use its sustainability report to shed a positive light
on its behavior (Holder-Webb et al., 2009). Indeed, impression
management can also be used on an ongoing basis to positively
influence corporate reputation. Since all corporations are liable to
tax, using the sustainability report to highlight the corporation's
contribution to society as a taxpayer is a simple strategy to improve
stakeholder perceptions.3
To summarize, legitimacy theory suggests that those companies
that have failed to fulfill their stakeholders' or societal expectations
in tax matters are more likely to disclose tax information, whereas
stakeholder theory predicts that corporations disclose tax infor-
mation under the assumption that their stakeholders perceive this
information to be relevant. To the extent that tax-aggressive cor-
porations face more political and social pressure, stakeholder and
legitimacy theory would provide similar suggestions.
2.2. Hypotheses development
There are various measures of tax aggressiveness in the litera-
ture (Hanlon and Heitzman, 2010). In line with previous research
(e.g., Dyreng et al., 2008; Laguir et al., 2015), this study relied on
ETRs as a measure of tax aggressiveness. Companies that have a
lower ETR can be suspected of being “poor taxpayers” compared to
those with higher ETRs. Hanlon and Slemrod (2009) argue that
negative media coverage in tax matters serves as a second measure
of tax aggressiveness and identifies those companies that have
been caught. Previous research generally shows a positive associ-
ation between media coverage and the level of sustainability
reporting (e.g., Brown and Deegan, 1998; Hahn and Kühnen, 2013;
Rupley et al., 2012).
Companies that are suspected of avoiding taxes risk losing their
legitimacy for failure to meet societal expectations. As a conse-
quence, these companies tend to disclose tax information in order
to maintain or rebuild their legitimacy and to satisfy societal in-
terests. By contrast, voluntary disclosure theory suggests that “good
taxpayers” (high ETR, no negative media coverage in tax matters)
are likely to disclose more tax information than “poor taxpayers”
(low ETR, negative media coverage in tax matters).
The relationship between tax aggressiveness and disclosure is less
clear when based on stakeholder theory. This theory suggests that
corporations tend to disclose tax information in cases in which their
powerful stakeholder groups perceive corporate tax payments to be a
relevant issue. If a corporation has a low ETR or is in the media spot-
light on account of tax aggressiveness, its stakeholders might be
particularly interested in tax information. However, “good taxpayers”
with powerful stakeholders who are interested in their corporations'
tax payments have incentives to disclose information as well.
This study tested the following undirected hypotheses:
H1. The level of tax disclosure in sustainability reports is
3
This valuable suggestion is thanks to an anonymous reviewer.
significantly associated with the ETR.
H2. The level of tax disclosure in sustainability reports is signifi-
cantly associated with negative media coverage in tax matters.
According to meta-studies on determinants of sustainability
reporting (Fifka, 2013; Hahn and Kühnen, 2013), a company's in-
dustry generally influences its reporting behavior. These findings
might be due to “peer pressure” from competitors in the respective
sectors that overwhelmingly engage in reporting (Kolk, 2010).
However, some industries are under tight scrutiny because they are
known for non-compliance with societal expectations, for instance,
by deliberately factoring environmental damage into their opera-
tions. Sustainability reporting is a tool for those companies to
communicate their policies and achievements (Perez and Sanchez,
2009). Brammer and Pavelin (2008) found that firms from sectors
that are most closely associated with negative environmental
impact disclose better environmental information.
As for taxes, several factors could influence whether a particular
industry is at the focus of stakeholder pressure: an industry's own
potential to avoid taxes, the enabling of tax avoidance among
others by an industry, and the consequences of an industry's tax
avoidance for the local communities. According to these factors, the
extractive, financial, and high-tech industries might be of particular
importance.
Given that extractive companies often operate in developing
countries, their tax payments are crucial to providing social ser-
vices, infrastructure, and education, to reducing poverty, and to
contributing to the economic development of these countries. At
the same time, these countries face challenges in enforcing legis-
lation and monitoring compliance (e.g., Christensen and Murphy,
2004; Muller and Kolk, 2015), and the shortcomings in this
respect enable multinational companies to avoid taxes. Therefore,
the EITI has sought to enhance tax transparency by disclosing tax
payments on revenue from natural resources.
With regard to the financial industry, this industry is often criti-
cized for promoting aggressive tax planning by developing complex
structured financial transactions (OECD, 2009). Banks sell these
transactions to their clients or use them to avoid taxes themselves. In
addition, banks are often accused of promoting tax evasion by
collaborating with tax havens. The OECD (2009) even published a tax
report on banks to address this problem. These so-called “enablers” of
tax aggressiveness and evasion are the primary focus of the Tax Justice
Network (2014). The media have also published a host of articles on
tax evasion condoned or supported by banks.
Firms that have valuable intangible assets such as trademarks or
patents are known for using these assets to shift profits to low-tax
countries (Markle and Shackelford, 2011). These firms have rather
mobile income. Their business operations and asset structures give
them greater flexibility to locate valuable intangibles in low-tax
jurisdictions and then allocate substantial income to that jurisdic-
tion. Moreover, the uniqueness of their products provides them
with more discretion in setting intercompany transfer prices. These
factors are particularly true for high-tech firms (De Simone et al.,
2015), which have substantial avoidance potential. Anecdotal evi-
dence supports this assumption. Multinational firms that are in the
media spotlight on account of their taxeavoidance activities are
often high-tech firms.
Given the prevalent tax aggressiveness and the societal impor-
tance of tax payments, the extractive and the financial industries
were confronted with increased mandatory tax disclosure obliga-
tions in the EU after the examination period. Recently, the EU
implemented two directives that required mandatory reporting of
tax payments on a country-by-country basis for the two industries.
The EU Accounting and Transparency Directive now requires
mandatory country-by-country reporting from large extractive and
 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351
logging companies for the financial year beginning January 1, 2016.
The EU Capital Requirements Directive (CRD IV) obliges financial
institutions to prepare country-by-country reporting on a confi-
dential basis with the first reporting period having begun on June
30, 2014. The DoddeFrank Act in the US initially set forth similar
requirements for the extractive sector. However, those re-
quirements did not enter into force.
Voluntary disclosure theory predicts that companies that have a
tax strategy that is typical for that industry will not disclose CSR
information. By contrast, stakeholder and legitimacy theory sug-
gest that these industries will disclose more frequent and more
detailed tax information to preserve their legitimacy and inform
their stakeholders. The following hypothesis was formulated:
H3. The level of tax disclosure in sustainability reports is associ-
ated with industry affiliations.
3. Data and methods
The sample comprised 540-firm-year observations from ninety
corporations in the US, the UK, and Germany covering the period
2007 to 2012. It is a balanced panel dataset that has both a cross-
sectional and a time-series dimension.
3.1. Sample selection
The set of firms targeted consisted of the thirty largest publicly
listed companies from each country at the end of 2012. From the US
and Germany, all corporations listed on the Dow Jones and German
Stock Exchange (DAX) were chosen. In the UK, the thirty corpora-
tions with the highest market capitalization at the end of the year
2012 from the FTSE 100 were part of the sample.
The corporations' homepages were examined for sustainability
reports from the reporting years 2007 to 2012. The data gathering
focused on sustainability reports at the group level and excluded all
information for a specific subunit or region. First, either a separate
sustainability report or an integrated report for the specific year
was sought. Second, if neither was available, the homepages were
investigated for CSR information that could be attributed to a
specific year. It was necessary to relate the information to a specific
year given that the goal was to analyze the development of
reporting over time. Third, if the homepages did not yield any CSR
information attributable to a specific year, the annual reports were
checked for a chapter on sustainability issues. Following Kolk
(2010), the firms were contacted by mail if no information was
found.4 This procedure was to avoid ignoring sustainability reports
that firms deleted from their homepages at a later stage.
Some corporations publish sustainability reports only every two
years. Others report on an irregular basis. Still others publish a full
sustainability report one year and just a small CSR overview the
next. In cases where the sustainability reports comprised two
reporting years, the report was classified as having been published
in the second year. Observing a set of ninety companies over a
period of six years amounted to N ¼ 540 observations; in 426 in-
stances a sustainability report was published or equivalent infor-
mation was made publicly available. Following Clarkson et al.
(2008), firms that failed to disclose CSR information were allowed
to remain in the sample given that non-disclosure of a sustain-
ability report is equivalent to non-disclosure of tax-related CSR
information.
4
In detail, those firms were contacted whose oldest available sustainability
report contained no information that this was the first report and whose home-
pages included no archive for corporate reports.
1341
3.2. Level of tax-related sustainability reporting
To measure the level of disclosure for later tests of the hy-
potheses, a tax disclosure index (TDI) was developed that aimed to
provide an extensive and systematic picture of voluntary tax-
related sustainability reporting.
3.2.1. Tax disclosure index (TDI)
Sustainability information can be reported through the use of
qualitative or quantitative indicators (Searcy et al., 2016). For the
TDI both kinds of indicators were used. Quantitative indicators
provide numeric information based on quantifiable data. Qualita-
tive indicators provide information that is easier to present by
means of texts or visual aids than numerically (Searcy et al., 2016).
The TDI determination started by using the scoring model offered
by Hardeck (2012), which is based mainly on the G3 guidelines. Her
index was extended in further steps. First, the G4 guidelines were
employed for the present research and complemented by items
with direct or potential links to taxation. The GRI guidelines are a
framework for voluntary sustainability reporting that consists of
two sections, General Standard Disclosures and Specific Standard
Disclosures, with three categories: economic, environmental, and
social. Prior research suggests that the GRI guidelines are the best
option available for sustainability reporting (Lozano, 2006; Lozano
and Huisingh, 2011; Morhardt et al., 2002). However, Lozano and
Huisingh (2011) and Lozano (2013) indicate that the guidelines
are mostly based on the triple-bottom line approach, which sepa-
rates the economic, environmental, and social dimensions. Sepa-
rating these dimensions tends to create compartmentalization,
thus neglecting possible interlinkages. This limitation is highly
relevant to tax-related sustainability reporting that relates to the
economic and social dimension while also touching on aspects of
the governance dimension.
Second, additional qualitative items from the OECD Guidelines
for Multinational Enterprises (OECD, 2011) were deducted. These
items are designed to promote the positive contributions multi-
nationals can make to economic, environmental, and social prog-
ress. They contain a specific chapter with recommendations for a
socially responsible approach to taxes (chapter XI). Given that the
OECD guidelines are one of the most important codes of conduct
and the only code of conduct with specific tax recommendations,
these recommendations are particularly important to a corpora-
tion's approach to taxes. The GRI also enjoys strategic partnerships
with the OECD and helps to report on an enterprise's imple-
mentation of the OECD guidelines (GRI, 2013b). Third, prior liter-
ature on tax-related sustainability reporting (Davis et al., 2016; Kolk
and Lenfant, 2010; Ylo €nen and Laine, 2015) was studied for further
potential items. Finally, so as not to overlook potential tax-related
content, exploratory research of the latest ninety reports from the
sample was conducted, and the index was extended by including
missing information. In doing so, the text in sustainability reports
was searched for mentions of the keywords “tax,” “government,”
“public sector,” or “fiscal.” Text that contained at least one of these
words was examined more closely and compared to the present
index. This resulted in a TDI that comprised twenty-one items.
All items were grouped into the following four categories: tax
performance indicators (1), governance structure and risk man-
agement system (2), public policy (3), and commitments to a so-
cially responsible approach to taxes (4). A differentiation was made
between objective or “hard” and “soft” disclosure items, which is in
line with Clarkson et al. (2008), who developed an index to assess
voluntary environmental reporting. Hard disclosure items cannot
be easily mimicked, whereas soft disclosure items comprise pure
commitments to the different dimensions of a socially responsible
approach to taxes. The TDI puts emphasis on objective measures of
1342 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351

performance as opposed to soft measures. Categories 1e3 repre- counted.

sent hard disclosure items, whereas category 4 entails soft disclo-
sure items. Table 1 outlines the items and their sources.
3.2.2. Differentiation between mandatory and voluntary disclosure
When calculating the TDI, equal weights were assigned to all 21
The aim was to examine voluntary tax disclosure in sustain-
items to avoid subjectivity. With one exemption, these items
ability reports. During the examination period, neither the US nor
constituted binary variables coded 1 if the respective item was
the UK nor Germany had mandatory requirements for tax disclo-
disclosed and 0 otherwise. The disclosure of taxes paid on a
sure in sustainability reports. However, all countries had and still
country-by-country basis was coded 2 if the corporation really
have mandatory disclosure obligations concerning the annual re-
differentiated taxes by country and 1 if it differentiated taxes by
ports that are related to some items of the two categories of tax
region or by taxes paid at home and abroad. The item was coded 0 if
performance indicators (1) and the governance structure and risk
no information was disclosed. The index ranges from 0 to 22 (hard
management system (2). Publicly traded companies in the EU and
disclosures: 0e15, soft disclosures: 0e7). A TDI  1 indicates that
SEC-regulated firms in the US are confronted with tax-related
the company disclosed some tax information in the respective year,
disclosure obligations in their annual reports according to IAS 12
whereas a TDI of zero suggests that the firm had no tax sustain-
or FAS 109. This concerns detailed information on current and de-
ability reporting at all.
ferred income taxes. A tax reconciliation explains differences be-
Two independent coders completed the index. A third coder
tween the expected and the actual tax expense and the ETR. These
verified their results. Given the huge quantity of sustainability
tax reconciliations generally allow a differentiation between do-
disclosures, the coders started by searching for the four afore-
mestic and foreign tax expense. SEC-regulated firms have more
mentioned keywords in sustainability disclosures and examined
extensive obligations; for instance, they have to disclose uncertain
bodies of text that contained one of these keywords for the items in
tax benefits (FIN 48). Independent of the corporation's country of
the TDI. Very often, there are disclosures on general performance
origin, tax payments to countries that participate in the EITI have to
indicators (e.g., profit before taxes; earnings before interest, taxes,
be disclosed by extractive firms. Finally, in all three countries,
depreciation and amortization) or the percentage of taxes (e.g.,
companies are required to disclose the material risks and un-
carbon taxes) in product prices. However, this kind of information
certainties they face and are expected to explain the actions they
was omitted because it does not offer valuable insight into the link
propose to mitigate the impact of those risks. In the US, the legis-
between corporate taxation and CSR as communicated by the
lator directly addresses tax risks and requires corporations to report
corporation. Given the diversity of keywords and the relevance of
on the adequacy of the company's internal control over financial
the context of a statement, the frequency of keywords was not
reporting (Section 404 of the SarbaneseOxley Act). Although

Table 1
Tax disclosure index (TDI).

Items Source Score Percentage of firms that conform to the item (%)

Total FTSE DOW DAX

N ¼ 540 N ¼ 180 N ¼ 180 N ¼ 180

Hard disclosure items

(1) Performance indicators (max. score is 7)
1. Taxes paid on a global basis for the current reporting period G4-EC1 (0e1) 40.9 57.8 27.8 37.2
2. Taxes paid on a global basis for at least the two most recent reporting G4-EC1 (0e1) 17.2 18.9 19.4 13.3
periods
3. Taxes paid on a regional basis G4-EC1 (0e2)a
- Regions/at home and abroad 5.0 7.2 4.4 4.4
- Country-by-country reporting 5.9 16.7 0.0 0.0
4. Differentiation between taxes borne and taxes collected Exploratory (0e1) 6.9 18.3 1.1 1.1
5. Effective tax rate Exploratory (0e1) 12.0 18.9 9.4 7.8
6. Financial assistance received from governments G4-EC4 (0e1) 7.2 5.6 1.1 15.0
(2) Governance structure and risk management system (max. score is 6)
1. Corporation's approach to tax risk management G4-14 (0e1) 5.4 11.7 2.8 1.7
2. Responsibility for tax governance G4-34 (0e1) 3.9 10.0 1.1 0.6
3. Reference to a code of conduct with regard to taxes G4-56 (0e1) 5.2 13.3 2.2 0.0
4. Board approval of the tax strategy G4-56 (0e1) 3.3 10.0 0.0 0.0
5. Disclosure of fines for tax non-complianceb G4-SO8 (0e1) 2.4 2.2 0.0 5.0
6. Disclosure of legal actions pending for non-compliance with tax lawb G4-SO8 (0e1) 5.9 6.1 0.0 11.7
(3) Public policy (max. score is 2)
1. Participation in tax initiatives to which the company subscribes G4-16 (0e1) 8.3 18.9 5.6 0.6
2. Disclosure of lobbying activities in tax matters G4-SO6 Guidance (0e1) 13.5 21.1 17.2 2.2
Soft disclosure items
(4) Commitments to a socially responsible approach to taxes (max. score is 7)
1. Tax compliance OECD Guidelines Chapter (0e1) 8.3 20.6 2.8 1.7
2. Compliance with the spirit of tax laws XI (0e1) 2.0 6.1 0.0 0.0
3. Transfer pricing practices that conform to the arm's length principle (0e1) 3.1 6.1 0.0 3.3
4. Taxes as a contribution to society (0e1) 30.6 42.8 26.7 22.2
5. Paying a fair or appropriate share of taxes (0e1) 5.6 7.2 5.0 4.4
6. Tax transparency (0e1) 11.1 27.8 5.6 0.0
7. Cooperation with tax authorities (0e1) 8.5 22.2 2.8 0.6

Notes.
a
The scoring scale is from 0 to 2. One point is awarded for the differentiation of taxes paid by region or taxes paid at home and abroad; two points are awarded for disclosure
on a country-by-country basis.
b
One point is awarded for the disclosure of tax non-compliance or the indication that non-compliance has not occurred in the reporting year.
 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351 1343

overall disclosure obligations in the US are slightly more extensive, assessed country-specific differences in sustainability reporting
these more extensive obligations should not affect the items in the (Hahn and Kühnen, 2013). To account for stock-index-specific ef-
TDI because it was only assessed whether corporations mentioned fects, two dummy variables were included for a listing in either the
the respective items instead of evaluating their elaborateness. More UK (FTSE) or Germany (DAX), whereas a listing in the US served as a
recent reporting periods were not analyzed because of further reference point for the two dummy variables.6 Finally, year dummy
developments in enhanced mandatory reporting obligations variables (YEAR) were included to control for year-specific effects
adopted in June and July 2013 as outlined in Section 2.2. over the period 2007e2012. All firm-specific financial data used in
this research were provided by the COMPUSTAT database.
3.3. Independent and control variables
3.4. Empirical strategy
There are multiple measures of tax aggressiveness employed in
the literature, and all measures have their individual shortcomings The dataset had a panel structure in which the dependent var-
(Hanlon and Heitzman, 2010). Consequently, the study used iable can only take positive integer values or zero (count data). The
different measures of tax aggressiveness: ETRs and an indicator histogram (Fig. 1) illustrates that a high number of companies had a
variable for firms that suffered from negative tax press (MEDIA). TDI of zero because they refrained from reporting any tax infor-
The generally accepted accounting principles (GAAP) ETR is mation in their sustainability report. Accordingly, the data can be
defined as total income tax expense divided by pre-tax accounting classified as zero-inflated-count data, which are positively skewed
income (net of special items). In contrast to Dyreng et al. (2008), GAAP and kurtotic. As a result of this data structure, the classical as-
income tax expenses were used instead of cash income tax expenses. sumptions that describe the error structure of ordinary least
Whereas cash ETRs have advantages for measuring tax aggressiveness squares (OLS) regression (conditional normality, homoscedasticity,
because of eliminating deferred taxes (Dyreng et al., 2008; Hanlon and independence) were not valid, thus leading to biased and
and Heitzman, 2010), GAAP ETRs are publicly available in annual re- inefficient tests of significance when OLS regression was applied
ports and can thus serve as a benchmark for external stakeholders. All (Diggle et al., 2002; Gardner et al., 1995). Table 2 illustrates the
company years with negative ETRs or ETRs above 1 were excluded in distribution of the dependent variable used. As the variance of the
the later regression analyses (thirty company years). variables was a multiple of the mean, the assumption of the
Negative media coverage for corporate tax policy (MEDIA) was equality of mean and variance (equidispersion) underlying the
measured in the following way. For each corporation, the company Poisson model was violated.
name and the words “tax avoidance,” “tax aggressiveness,” “tax Addressing the challenges of panel-correlated counted depen-
shelter,” or “tax evasion” were typed into an Internet search en- dent variables requires one to apply the quasi-likelihood method
gine.5 The first fifty results for each company were checked for based on generalized linear models (GLM; McCullagh and Nelder,
negative reports on its tax policy initiated by the media, non- 1989; Nelder and Wedderburn, 1972; Wedderburn, 1974) known
governmental organizations, and/or politicians. If any publica- as generalized estimating equations (GEEs). Liang and Zeger
tions of this type were found, the dummy variable was coded 1 for introduced GEEs to test the influence of factors on binary and other
the respective company. Further information on the sources of exponentially (e.g., Poisson, gamma, negative binominal) distrib-
negative publications was also collected. However, to avoid uted response variables in longitudinal data (Liang and Zeger, 1986;
subjectivity in classifying the findings, the analysis refrained from Zeger and Liang, 1986). This method was originally used in the
using a more detailed measure. medical sciences and health economics. Since then, accounting
This research used the Standard Industrial Classification (SIC) researchers have also come to apply GEEs to overcome the
system to classify the industries. Extractive (EXRACTIVE) and
financial companies (FINANCE) were measured as dummy variables
and coded 1 if the corporation had a SIC code between 10 and 14 or
60e67, respectively, and coded 0 otherwise. According to De
Simone et al. (2015), corporations with the following three-digit
SIC codes were considered to be in the high-tech industry (HIGH-
TECH): 283, 357, 360e368, 481, 737, and 873.
Several control variables from the sustainability reporting
literature were included in the regression model to control for
other effects. Previous research shows that corporation size (SIZE)
is positively related to the level of sustainability reporting, owing to
the higher visibility of large corporations (e.g., Ho and Taylor, 2007;
Leuz and Verrecchia, 2000; Patten, 2002). SIZE was measured as
total assets in US dollars in the respective years. Total assets had a
right-skewed distribution. To approximate a normal distribution,
the natural logarithm of total assets was used. To measure the
firm's profitability, the accounting-based measure of return on as-
sets (ROA) was employed (e.g., Brammer and Pavelin, 2008; Patten,
1991), which represents pre-tax income divided by total assets.
Leverage (LEV), which was measured as total debt divided by total
Fig. 1. Histogram of the TDI.
assets, controlled for enhanced disclosure of companies with
increasing leverage as outlined by previous research (e.g., Clarkson
et al., 2008; Fifka, 2013; Francis et al., 2005). Only a few studies have

6
The robustness of the model was tested using either FTSE or DAX as a reference
5
The Google search engine was used. For the German corporations, the search point for the dummy variables. However, this did not change the (untabulated)
was also performed in German. results.
1344 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351

Table 2
Descriptive statistics.

N Mean Std. dev. Variance Skewness Kurtosis Minimum Median Maximum

TDI 540 2.18 3.12 9.73 1.944 7.13 0.00 1.00 16.00
TDI (weighted) 540 2.64 4.01 16.08 2.21 8.47 0.00 1.00 22.00
TDI (pos. attitudes) 540 2.03 2.93 8.61 2.01 7.61 0.00 1.00 16.00
HDI 540 1.49 2.16 4.64 1.89 6.95 0.00 0.00 12.00
SDI 540 0.69 1.18 1.39 2.17 7.69 0.00 0.00 6.00
PDI 540 1.01 1.40 1.95 1.29 3.88 0.00 0.00 6.00
ETR 540 0.26 0.11 0.01 1.08 8.96 0.00 0.26 0.95
SIZE 540 11.40 1.40 1.96 0.60 3.18 8.37 11.15 15.15
LEV 540 2.47 0.23 0.05 5.75 49.78 0.00 0.22 2.49
ROA 540 0.09 0.08 0.01 0.44 4.76 0.32 0.07 0.37

Dummy variables 0 (%) 1 (%)

MEDIA 540 162 (30.0%) 378 (70.0%)

EXTRACT 540 498 (92.2%) 42 (7.8%)
FINANCE 540 450 (83.3%) 90 (16.7%)
HIGHTECH 540 444 (82.2%) 96 (17.8%)
FTSE 540 360 (66.7%) 180 (33.3%)
DAX 540 360 (66.7%) 180 (33.3%)

Notes: Variable definitions: TDI ¼ level of tax disclosure; TDI (weighted) ¼ level of tax disclosure based on weighted items; TDI (pos. attitudes) ¼ level of tax disclosure
including only positive attitudes towards taxation; HDI ¼ index of hard disclosure items; SDI ¼ index of soft disclosure items; PDI ¼ index of past disclosure items; ETR ¼ tax
expense divided by pre-tax income (net of special items); SIZE ¼ the natural logarithm of total assets; LEV ¼ long-term debt divided by total assets; ROA ¼ pre-tax income
divided by total assets; MEDIA ¼ a dummy variable that takes a value of 1 if the corporation has received negative press for its tax policy and 0 otherwise; EXTRACT ¼ a dummy
variable that takes a value of 1 if the corporation is in the extractive sector (SIC code 10e14) and 0 otherwise; FINANCE ¼ a dummy variable that takes a value of 1 if the
corporation is in the finance, insurance, or real estate sector (SIC code 60e67) and 0 otherwise; HIGHTECH ¼ a dummy variable that takes a value of 1 if the corporation is in the
high-tech industry (SIC code 283, 357, 360e368, 481, 737, and 873) and 0 otherwise; FTSE ¼ a dummy variable that takes a value of 1 if the corporation is listed on the FTSE100
and 0 otherwise; DAX ¼ a dummy variable that takes a value of 1 if the corporation is listed on the DAX and 0 otherwise.

restrictions of OLS (e.g., Maas et al., 2012; Koerniadi and Tourani-
Rad, 2012; Morrow and Ricketts, 2010).
The estimation of a GEE model requires a specification of the
distribution of the dependent variable, the link function, and the
correlation structure of the dependent variable. Taking into account
the overdispersion (the variance is larger than the mean owing to
zero inflation) of the dependent variable, four different specifica-
tions of the distribution were tested: overdispersed Poisson,
negative binominal, gamma distribution, and a population-
averaged negative binominal model. Since chi-square is the high-
est in gamma regression (c2 ¼ 90.90), the gamma specification was
chosen for the subsequent analysis.
The link function in all models was specified by a log function.
Since the data were collected over time, an autoregressive AR(1)
correlation matrix was hypothesized for all models (Hilbe and
Hardin, 2008). This is supported by the untabulated correlation
matrices of the dependent variables. All correlation coefficients are
positive, highly significant, and decrease over time.7
4. Results
The results section first elucidates how much and what kind of
tax information corporations disclose in their sustainability report.
In the following step, it assesses the determinants of disclosure and
presents further robustness checks to examine the validity of the
results.
4.1. Descriptive results
The results confirm findings of prior research that corporations
frequently neglect tax-related sustainability reporting. Neverthe-
less, the descriptive evidence suggests that, over time, there has
been a rise in the level of tax disclosure (Table 3). Overall, tax
disclosure in sustainability reports increased over the years from
46.70% in 2007 to 58.90% in 2012 (TDI  1). However, in 2009 and
2012, there was a small decline relative to the previous reporting
year. The results indicate that 80.00% of the FTSE corporations re-
ported tax information in their sustainability reports in 2012
compared to 43.30 and 53.30% in the US and Germany, respectively.
Over the six-year period, the share was always the highest in the
UK.
The tax disclosure level (i.e., the average TDI score achieved by
the corporations) rose from 1.76 to 3.00. At 5.87 in 2012, the level of
reporting among the FTSE firms was more than three times higher
than among the Dow Jones (1.50) and DAX firms (1.63). Although
the differences between the three countries rose over time, the
standard deviations show that the differences between the firms
within individual countries were also on the rise.
The correlation results (Table 4) suggest significantly negative
(positive) associations between ETR (MEDIA) and the TDI, which
suggests that tax-aggressive corporations have a higher reporting
level. At the industry level, positive (negative) associations between
EXTRACT respectively HIGHTECH (FINANCE) and the TDI imply that
extractives and high-tech firms (financial firms) report more (less)
tax information in their sustainability report.
The results suggest that, except for the UK, around half of the
corporations were silent on corporate taxation and CSR. On
average, the CSR information that was disclosed was very scarce.
These results provide evidence on the level or extent of disclosure;
however, they cannot offer insight into which items are disclosed
and whether corporations discuss their tax payments in a rather
technical manner, as contributions to society, or obstacles to eco-
nomic growth. The following analysis aims to overcome these
limitations.

4.2. Analysis of the items in the TDI

7
If the correlation matrix is specified as an AR(1) process, some observations are
“used up” for the estimation of the working correlation matrix, and the number of
observations used in the estimation declines. However, given that the dataset is
With regard to the items in the TDI, Table 1 summarizes the
large enough, the correct specification of the correlation matrix outweighs the average scores assigned across the whole sample and the three
decline in the number of observations. stock indexes. In 17 of 21 items, the percentage of firms that
 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351 1345

Table 3
Level of tax disclosure over time.

2007 2008 2009 2010 2011 2012 % Difference

Percentage of firms that disclose tax information

Tax reporting (TDI  1)
All firms 46.7% 53.3% 47.8% 52.2% 61.1% 58.9% 8.1%**
FTSE 60.0% 63.3% 60.0% 66.7% 80.0% 80.0% 14.4%**
DOW 30.0% 50.0% 40.0% 40.0% 46.7% 43.3% 3.3%
DAX 50.0% 46.7% 43.3% 50.0% 56.7% 53.3% 6.6%
Mean (standard deviation) of the level of tax disclosure
TDI
All firms 1.76 (2.76) 1.84 (2.79) 1.82 (2.82) 2.22 (2.99) 2.41 (3.34) 3.00 (3.75) 0.73***
FTSE 2.93 (3.84) 2.90 (3.91) 2.93 (3.90) 3.90 (3.99) 4.50 (4.62) 5.87 (4.66) 1.83***
DOW 0.90 (1.74) 1.53 (2.05) 1.47 (2.15) 1.40 (2.06) 1.37 (1.99) 1.50 (2.06) 0.12
DAX 1.43 (1.79) 1.10 (1.58) 1.07 (1.64) 1.37 (1.73) 1.37 (1.47) 1.63 (2.13) 0.25

Notes: The sample consists of 90 firms in each reporting period. At the stock index level, the sample consists of 30 firms, respectively. The difference is related to the first half of
the years covered compared to the second half. ***, **, and * indicate significance at the 0.01, 0.05, and 0.10 level, respectively. The p values are two-tailed. Chi-square tests are
reported to assess the significance of the change in tax reporting from the first three years covered (2007e2009) to the second three years period (2010e2012). T-tests are
reported to assess whether changes in the TDI are significant.

Table 4
Correlation results.

TDI ETR PRESS EXTRACT FINANCE HIGHTECH SIZE LEV ROA FTSE DAX

TDI 1
ETR 0.10** 1
MEDIA 0.16*** 0.01 1
EXTRACT 0.47*** 0.17*** 0.10** 1
FINANCE 0.09** 0.01 0.33 0.13*** 1
HIGHTECH 0.08* 0.22*** 0.05 0.14*** 0.21*** 1
SIZE 0.10** 0.00 0.31*** 0.07* 0.65*** 0.06 1
LEV 0.07 0.74* 0.04 0.11** 0.15*** 0.11*** 0.05 1
ROA 0.13*** 0.17*** 0.13*** 0.29*** 0.45*** 0.14*** 0.35*** 0.06 1
FTSE 0.38*** 0.00 0.05 0.24*** 0.06 0.08* 0.06 0.11** 0.05 1
DAX 0.19*** 0.01 0.36*** 0.21*** 0.00 0.08* 0.13*** 0.03 0.32*** 0.50*** 1

Notes: ***, **, and * indicate significance at the 0.01, 0.05, and 0.10 level, respectively. The p values are one-tailed for directional hypotheses and two-tailed otherwise. Variable
definitions: TDI ¼ level of tax disclosure; ETR ¼ tax expense divided by pre-tax income (net of special items); MEDIA ¼ a dummy variable that takes a value of 1 if the
corporation has received negative press for its tax policy and 0 otherwise; EXTRACT ¼ a dummy variable that takes a value of 1 if the corporation is in the extractive sector (SIC
code 10e14) and 0 otherwise; FINANCE ¼ a dummy variable that takes a value of 1 if the corporation is in the finance, insurance, or real estate sector (SIC code 60e67) and
0 otherwise; HIGHTECH ¼ a dummy variable that takes a value of 1 if the corporation is in the high-tech industry (SIC code 283, 357, 360e368, 481, 737, and 873) and
0 otherwise; SIZE ¼ the natural logarithm of total assets; LEV ¼ long-term debt divided by total assets; ROA ¼ pre-tax income divided by total assets; FTSE ¼ a dummy variable
that takes a value of 1 if the corporation is listed on the FTSE100 and 0 otherwise; DAX ¼ a dummy variable that takes a value of 1 if the corporation is listed on the DAX and
0 otherwise.

attained the item was the highest in the UK. Firms scored most
often within the tax performance category (1). For instance, about
40% of the whole sample disclosed their global tax payments. This
is the item in the TDI with which most companies complied across
all three indexes and which was reported relatively consistently
over time. A growing number of firms disclosed tax payments on a
country-by-country basis in their sustainability report or referred
to information that they had provided elsewhere. In 2012, the
seven FTSE firms Anglo American, Barclays, BHP Billiton, HSBC, Rio
Tinto, Royal Dutch Shell Group, and Xstrata/Glencore (16.7% in the
UK) voluntarily disclosed their payments for at least some coun-
tries of operation, whereas only three of the firms did so in 2007.
By contrast, fewer than 10% disclosed information on tax
governance and risk management (category 2). For instance,
Vodafone (2011, p. 53) states: “Vodafone's Tax Risk Policy, devel-
oped in 2008/09, is designed to ensure tax risksdfinancial and
reputationaldare assessed, tracked, recorded and managed
consistently across the Group.” Rio Tinto (2013, p. 5) explains its tax
strategy in detail and states, “Rio Tinto pursues a tax strategy that is
principled, transparent and sustainable in the long term. The Group
has established principles governing its tax strategy which have
been reviewed and approved by the board of directors.” Anglo
American (2009, p. 13) admits that “there are instances when we
must challenge tax authorities in the best interests of the Group.
One example is the litigation under EU law relating to the taxation
of foreign-controlled subsidiaries.”
As for public policy (category 3), a number of firms in the US and
the UK reported lobbying activities, whereas German companies
refrained from reporting activities of this kind. Two different per-
spectives were expressed: a rather positive and a rather negative
view of taxes. The corporations that took a more favorable stance
on taxes referred to their economic significance for the host com-
munities. They lobbied for fairer tax systems around the world (e.g.,
BMW, Diageo), the implementation of a carbon tax to fight global
warming (e.g., BHP Billiton, ExxonMobil), or higher tax transparency
standards (e.g., Anglo American).
A second group of firms expressed a rather negative attitude
toward taxes. In line with prior research that takes a critical stance
on the relationship between corporate tax payments and CSR (e.g.,
Davis et al., 2016; Friedman, 1970; McGee, 2010), these firms
generally perceived tax payments to be an obstacle to economic
growth. They lobbied for lower tax rates, a more competitive tax
system, or tax credits. In the US, in particular, companies such as
3M, Johnson & Johnson, Intel, Nike, General Electric, Walmart, and
Merck & Co Inc. lobbied for tax reform and a more competitive tax
system. 3M (2012, p. 15) states: “Tax reform is essential to ensuring
the long-term competitiveness of American businesses and
workers. 3M believes business tax reform should focus on a
1346 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351

significant reduction of the corporate income tax rate, transitioning performance indicators (1) or information on tax governance and
to a territorial system, and creating incentives for US-based IP tax risk management (2). Second, some reports include CSR com-
ownership (…).” Depending on the industry, some firms lobbied for mitments according to category (4), which are often supported by
lower taxes on alcohol (Diageo), pharmaceuticals (GlaxoSmithKline, the disclosure of tax information within the other categories. Third,
Merck & Co Inc.), and tobacco (Imperial Tobacco Group). Others some firms point out the negative societal consequences of
spoke out against a financial transaction tax (e.g., Deutsche Bo €rse). corporate taxation, especially within the category (3).
Some firms, such as Vodafone and Anglo American, followed a dual The following section explores potential determinants of
approach. Anglo American (2012), for example, has been involved disclosure to shed more light on the causes of differences in the
in the EU proposals for greater tax transparency while also level of reporting.
demanding a more competitive tax system, legal security, and in-
centives for capital-intensive industries.
Some firms disclosed their support for tax initiatives. From the 4.3. Regression results
extractive industry, in particular, firms reported their support for
the EITI as part of their drive for transparency and the prevention of The regression results are reported in Table 5. Given the exis-
corruption in developing countries. ExxonMobil (2012, p. 50) calls tence of two opposing theories to explain the voluntary disclosure
bringing “the benefits of oil and gas development to local pop- of information, all p values are two-tailed. Two regressions, one
ulations” by supporting the EITI one of its five CSR priorities. The with year dummies (column 2) and one without (column 1), were
Royal Bank of Scotland (2012) has disclosed its support for the Tax run. In the following, the analysis focuses on the regression results
Justice Network. (2) that display a higher fit. The regression coefficients can be
As concerns commitments to a socially responsible approach to interpreted in two ways: first, in terms of semi-elasticities, and
taxes (category 4), the commitment to taxes as a contribution to second, in terms of mean effects, which are similar to the incidence
society as a whole was the TDI's second most disclosed item. About rate ratios in Poisson regression (Gardner et al., 1995). The inci-
30% of the firms considered their tax payments to be a contribution dence rate ratios are also reported in Table 5.
to society or host communities and not just an operating cost. In The regression coefficient for ETR is negative and significantly
doing so, they explicitly perceived taxes as part of their CSR. BHP associated with TDI (p < .10), which supports H1. The lower a cor-
Billiton (2012, p. 28), for example, reports: “Nationally and poration's ETR, the higher the level of disclosure. The regression
regionally, we contribute taxes and royalties to governments that in coefficient of 0.59 can be interpreted as semi-elasticity, where a
turn provide infrastructure and services to their constituents.” change in the ETR by one percentage point is associated with a
Some corporations reported their tax payments as one of their
major economic contributions (e.g., SAB Miller). In this respect,
Table 5
multiple firms highlighted their payments to developing countries Gamma regression results (with the dependent variable TDI).
(e.g., Anglo American, Barclays, Diageo, Royal Dutch Shell, SAB Miller,
Dependent variable: TDI
and Siemens). Siemens (2008, p. 17) maintains: “We provide
considerable support for domestic economies, particularly in (1) IRR (2) IRR
emerging nations and developing countries, such as with the taxes ETR 0.84 (0.32)*** 0.43 0.59 (0.33)* 0.55
we pay and other tax revenues that are made possible by our MEDIA 0.51 (0.38) 1.67 0.74 (0.36)** 2.10
economic success.” EXTRACT 1.13 (0.29)*** 3.10 1.33 (0.28)*** 3.78
FINANCE 0.79 (0.61) 0.45 0.64 (0.56) 0.53
Along with the commitment to taxes as a contribution to so- HIGHTECH 0.70 (0.29)** 2.01 0.81 (0.29)*** 2.25
ciety, the relevance of tax transparency seemed to be on the rise SIZE 0.27 (0.14)* 1.31 0.18 (0.13) 1.20
during the years surveyed. Except for German corporations, LEV 0.19 (0.32) 1.21 0.40 (0.26) 1.49
commitments to tax transparency increased from 6.7% in 2007 to ROA 0.66 (0.65) 1.93 0.27 (0.83) 1.31
FTSE 1.26 (0.28)*** 3.53 1.24 (0.27)*** 3.46
20.0% in 2012, mostly in the UK, where 53.3% disclosed such a
DAX 0.80 (0.34)** 2.23 0.87 (0.33)*** 2.39
commitment in 2012. Pure commitments of this kind enable firms Dummy_2008 0.29 (0.16)* 1.34
at least to create the impression that they support transparency. Dummy_2009 0.20 (0.21) 1.22
However, multiple firms underscored this commitment by their Dummy_2010 0.43 (0.18)** 1.54
involvement in the EITI and disclosure of tax payments on a Dummy_2011 0.62 (0.20)*** 1.86
Dummy_2012 0.79 (0.22)*** 2.20
regional level or even on a country-by-country basis. Royal Dutch INTERCEPT 3.54 (1.43)** 0.03 3.27 (1.39)** 0.04
Shell (2012, p. 31) states that transparency “is important for N 437 437
building trust between businesses such as ours and the commu- Wald chi2 90.90 172.25
nities we work alongside.” p <0.001 <0.001
The remaining items were rarely disclosed (fewer than 10%). Notes: ***, **, and * indicate significance at the 0.01, 0.05, and 0.10 level, respec-
For instance, Johnson & Johnson declares in every report (e.g., tively. The p values are two-tailed. Coefficients are estimated by gamma regression.
2012, p. 67): “In each community in which we live and work, and Cluster-robust standard errors appear in parentheses. Variable definitions:
TDI ¼ level of tax disclosure; ETR ¼ tax expense divided by pre-tax income (net of
within the world community, we are called to be good citizens, special items); MEDIA ¼ a dummy variable that takes a value of 1 if the corporation
supporting good works and charities, bearing our fair share of has received negative press for its tax policy and 0 otherwise; EXTRACT ¼ a dummy
taxes (…).” Some companies noted that they changed their tax variable that takes a value of 1 if the corporation is in the extractive sector (SIC code
strategy as a consequence of stakeholder pressure. For instance, 10e14) and 0 otherwise; FINANCE ¼ a dummy variable that takes a value of 1 if the
corporation is in the finance, insurance, or real estate sector (SIC code 60e67) and
the UK bank Barclays (2012, p. 19) explicitly reacted to negative
0 otherwise; HIGHTECH ¼ a dummy variable that takes a value of 1 if the corpo-
press coverage on its handling of taxes and states in its report: ration is in the high-tech industry (SIC code 283, 357, 360e368, 481, 737, and 873)
“In the UK, we have voluntarily adopted the UK government's and 0 otherwise; SIZE ¼ the natural logarithm of total assets; LEV ¼ long-term debt
Code of Practice on Taxation for Banks. This commits us to divided by total assets; ROA ¼ pre-tax income divided by total assets; FTSE ¼ a
applying the spiritdas well as the letterdof the law in all tax dummy variable that takes a value of 1 if the corporation is listed on the FTSE100
and 0 otherwise; DAX ¼ a dummy variable that takes a value of 1 if the corporation
dealings (…).” is listed on the DAX and 0 otherwise. N ¼ effective number of observations used in
To summarize, first, there are reports that avoid real CSR com- the estimation (according to the specification of an autoregressive AR(1) correlation
mitments and provide only more technical disclosures such as tax matrix).
 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351
proportionate decline in the TDI by 0.59.8
The significantly positive regression coefficient of MEDIA
(p < .05) confirms that firms that suffer from negative tax press
have a higher level of disclosure (H2). The effect of negative media
coverage, which has an incidence rate ratio of 2.10, implies that
receiving negative press in tax matters increases the expected TDI
by some 110% up to an expected value of 2.98 (Table 5). This is in
line with the descriptive statistics since the mean TDI of companies
without negative media coverage is 1.20, whereas the mean TDI of
companies with negative media coverage is about 2.51, with a 95%
confidence interval ranging from 2.19 to 2.82.
With regard to industry affiliations, regression coefficients are
highly significant for EXTRACT (p < .01) and HIGHTECH (p < .01).
Extractive companies have a higher disclosure score than other
firms, which supports H3. The incidence ratio of 3.78 implies that
extractive companies have an expected TDI of 278% above the non-
extractives. This finding is in line with the descriptive statistics
since the mean TDI of non-extractives is about 1.75, the mean TDI of
extractive companies is 7.26, and the predicted TDI of extractive
companies is about 6.62 and lies within the 95% confidence interval
ranging from 5.80 to 8.72. The significantly positive regression
coefficient of HIGHTECH shows that high-tech firms actually do
disclose more tax information in their sustainability reports than
other firms. The corresponding incidence ratio of 2.25 implies an
increase in the expected TDI by some 125%. The regression coeffi-
cient of FINANCE is negative but nonsignificant, which suggest that
the financial firms' level of reporting is not significantly different
from that of other industries (Table 5).
Significant and increasing dummies for all years except for 2009
imply that the level of reporting increased in nearly all years
covered compared to the reference year of 2007. Finally, there are
clear structural differences in reporting between the three indexes
that cannot be explained by company-specific characteristics. The
significantly positive regression coefficient for the FTSE (p < 0.01)
and DAX dummy (p < 0.01) suggests that US firms have a lower
disclosure score than German and especially British corporations.
The incidence ratio of 3.46 implies an increase in the expected TDI
by some 245%, which would result in an expected average TDI of
4.63 for UK companies. This predicted value lies within the 95%
confidence interval, ranging from 3.24 to 4.48 for British
corporations.
4.4. Additional tests and robustness checks
Some additional analyses were conducted to examine the val-
idity of the results. First, a weighted TDI was estimated. The original
TDI was based on 21 equally weighted items to avoid subjectivity.
However, there might be items that are more relevant than others
from a CSR point of view. In the following robustness check, an
index was used in which the weighted items that fulfilled all of the
following three requirements were doubled: the item cannot be
feigned (i.e., it does not contain pure commitments), the item does
not have to be mandatorily disclosed in other media, and the item
8
When interpreting the coefficient it must be kept in mind that the elasticity is
defined as 1/y , where ME denotes the marginal effect ME ¼ Dy/Dx, x is the
predictor, and y the response. The ME or partial effect measures the effect on the
conditional mean of y for a change in one of the regressors, say, xj. In linear models,
the ME equals the relevant slope coefficient. In nonlinear models, as is the case
here, the coefficients are more difficult to interpret as bj sdEðyjxÞ=dxj . However, a
direct interpretation of the ME is possible if the conditional mean is of the single
0 0 0
index form EðyjxÞ ¼ mðx0 bÞ, which implies that ME ¼ m (x b)  bj. If m(x b) increases
b
monotonically, the sign of bj corresponds to the ME. Second, for any function m and
any value of x, it holds that MEj/MEk ¼ bj/bk , which states that if one coefficient is
twice as large as another, then the ME is twice as large as well (Cameron and
Trivedi, 2009).
1347
can be considered to be very important in the context of a socially
responsible tax strategy.9 As shown in Table 6, the results are quite
similar to those of the regression performed on the TDI with equally
weighted items and imply that these findings are relatively robust
to different weightings. All signs and significances remain un-
changed except for the significance of ETR. Since a stronger
emphasis on “hard” disclosure items that are not available in other
communication instruments underscores a low tax burden and
reveals sensitive information among firms with lower ETRs, such
firms might avoid disclosing such items.
Second, the hard disclosure items (HDI) (categories 1e3) and the
soft disclosure items (SDI) (category 4) were used instead of the TDI
as dependent variables. This procedure allowed differences in
explanatory variables to be assessed depending on the disclosure
category. Legitimacy theory suggests that companies report tax
information to preserve their legitimacy. Against this background,
“poor taxpayers” (low ETR, negative media coverage in tax matters)
might report soft items in particular as an impression management
strategy that aims to improve their reputation. The results confirm
this assumption (Table 6). ETR had a strong and significantly
negative effect on SDI only (bsoft ¼ 3.68), whereas the effect on
HDI became slightly nonsignificant.
In addition, with regard to MEDIA, the effect is marginally
stronger on SDI, which supports the predictions derived from
legitimacy theory as well. When one looks at the financial industry
dummy, the results show that the coefficient is negative but
nonsignificant in the case of hard disclosure items. Interestingly,
regressing SDI on FINANCE shows that the coefficient is signifi-
cantly and highly negative. Clearly, this industry, which is under
particular pressure on account of its tax aggressiveness, is keen to
avoid soft claims of commitment to a responsible tax strategy. In
contrast to the other results, these findings rather support pre-
dictions by economics-based voluntary disclosure theories. Looking
at the high-tech industry reveals that this industry does not provide
more commitments to a responsible tax strategy than other in-
dustries. Whereas tax payments by extractives are an important
prerequisite for reducing poverty in developing countries, media
and non-governmental organizations do not discuss the role of
high-tech firms in this context. Therefore, the non-significant
regression coefficient of HIGHTECH in the case of SDI might be
due to a less strong need to convey the reputation of a good
taxpayer. Finally, the FTSE dummy has a significantly positive effect
on the soft disclosure items, whereas the DAX dummy becomes
nonsignificant. Apparently, on the basis of these results, FTSE
companies disclose a commitment to a socially responsible tax
strategy more frequently, whereas US and German companies
avoid these statements to the same extent. By contrast, in the case
of HDI, both FTSE and DAX have a significantly positive effect.
Third, prior research suggests concerns that corporations pri-
marily disclose information about past performance instead of
future prospects (Ioannou and Serafeim, 2016). In contrast to the
categories (2) to (4), category (1) exclusively relates to the corpo-
ration's past performance (PDI). To assess potential differences in
the disclosure of past performance, category (1) was regressed on
dependent and control variables. As reported in Table 6, the results
are quite similar to those of the regression performed on the TDI. All
signs and significances of the independent variables remain un-
changed except for the significance of ETR. Since information on
past performance would draw the attention to the rather low tax
burden, those firms might tend to disclose future prospects instead.
Fourth, some light can be shed on the relationship between tax
9
The following items fulfilled all requirements: (1) 3, (1) 6, (2) 3, (2) 4, (2) 6, (3)
1.
1348 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351

Table 6
Gamma regression results (additional tests and robustness checks).

HDI SDI PDI TDI (weighted) TDI (with interaction) TDI (pos. attitudes)

(1) IRR (2) IRR (3) IRR (4) IRR (5) IRR (6) IRR

ETR 0.39 (0.36) 0.68 3.68 (0.72)*** 0.03 0.64 (0.44) 0.53 0.47 (0.31) 0.63 0.29 (0.38) 0.75 0.55 (0.33)* 0.58
MEDIA 0.66 (0.38)* 1.93 0.73 (0.34)** 2.08 0.84 (0.34)** 2.32 0.73 (0.38)* 2.08 0.73 (0.36)** 2.08 0.79 (0.34)** 2.20
EXTRACT 1.34 (0.30)*** 3.82 0.96 (0.27)*** 2.61 1.12 (0.27)*** 3.06 1.49 (0.29)*** 4.44 1.32 (0.28)*** 3.74 1.39 (0.28)*** 4.01
FINANCE 0.46 (0.60) 0.63 2.11 (0.53)*** 0.12 0.44 (0.56) 0.64 0.61 (0.56) 0.54 0.62 (0.57) 0.54 0.62 (0.53) 0.54
HIGHTECH 0.87 (0.31)*** 2.39 0.21 (0.29) 1.23 0.71 (0.33)** 2.03 0.78 (0.30)*** 2.18 0.80 (0.30)*** 2.23 0.76 (0.30)** 2.14
SIZE 0.13 (0.14) 1.14 0.67 (0.12)*** 1.95 0.12 (0.16) 1.13 0.17 (0.13) 1.19 0.18 (0.13) 1.20 0.17 (0.13) 1.19
LEV 0.31 (0.32) 1.36 0.63 (0.26)*** 1.88 0.39 (0.27) 1.48 0.43 (0.32) 1.54 0.39 (0.27)* 1.48 0.43 (0.31) 1.54
ROA 0.19 (0.91) 1.21 3.35 (1.18)*** 8.50 0.01 (0.89) 1.01 0.09 (0.80) 1.09 0.36 (0.82) 1.43 0.18 (0.80) 1.20
FTSE 1.22 (0.30)*** 3.39 1.23 (0.26)*** 3.42 1.09 (0.29)*** 2.97 1.30 (0.28)*** 3.67 1.26 (0.27)*** 3.53 1.31 (0.28)*** 3.71
DAX 0.96 (0.35)*** 2.61 0.53 (0.34) 1.70 0.98 (0.36)*** 2.66 0.96 (0.35)*** 2.61 0.88 (0.33)*** 2.41 0.96 (0.32)*** 2.61
ETR*MEDIA 1.15 (0.76) 0.32
INTERCEPT 3.03 (1.53)** 0.05 9.27 (1.42)*** 0.00 3.17 (1.65)* 0.04 3.13 (1.47)** 3.36 (1.39)** 0.03 3.34 (1.41)** 0.04
YEAR Dummies Yes Yes Yes Yes Yes Yes
N 437 437 437 437 437 437
Wald chi2 146.36 241.64 119.49 192.02 170.94 166.92
p <0.001 <0.001 <0.001 <0.001 <0.001 <0.001

Notes: ***, **, and * indicate significance at the 0.01, 0.05, and 0.10 level, respectively. The p values are two-tailed. Coefficients are estimated by gamma regression. Cluster-
robust standard errors appear in parentheses. Variable definitions: HDI ¼ index of hard disclosure items; SDI ¼ index of soft disclosure items; PDI ¼ index of past disclosure
items; TDI (weighted) ¼ level of tax disclosure based on weighted items; TDI (with interaction) ¼ level of tax disclosure with interaction term (ETR*MEDIA) as independent
variable; TDI (pos. attitudes) ¼ level of tax disclosure including only positive attitudes towards taxation; ETR ¼ tax expense divided by pre-tax income (net of special items);
MEDIA ¼ a dummy variable that takes a value of 1 if the corporation has received negative press for its tax policy and 0 otherwise; EXTRACT ¼ a dummy variable that takes a
value of 1 if the corporation is in the extractive sector (SIC code 10e14) and 0 otherwise; FINANCE ¼ a dummy variable that takes a value of 1 if the corporation is in the finance,
insurance, or real estate sector (SIC code 60e67) and 0 otherwise; HIGHTECH ¼ a dummy variable that takes a value of 1 if the corporation is in the high-tech industry (SIC code
283, 357, 360e368, 481, 737, and 873) and 0 otherwise; SIZE ¼ the natural logarithm of total assets; LEV ¼ long-term debt divided by total assets; ROA ¼ pre-tax income
divided by total assets; FTSE ¼ a dummy variable that takes a value of 1 if the corporation is listed on the FTSE100 and 0 otherwise; DAX ¼ a dummy variable that takes a value
of 1 if the corporation is listed on the DAX and 0 otherwise. N ¼ effective number of observations used in the estimation (according to the specification of an AR(1) correlation
matrix).

disclosure and negative media coverage with the aim of assessing
whether the impact of negative media coverage is stronger among
those firms that previously had lower ETRs. The impact of negative
media coverage was estimated by adding a centered interaction
term MEDIA*ETR. A significantly negative regression coefficient
would suggest that firms with higher ETRs tend to disclose less
information in the case of negative press because they would suffer
from fewer threats to their legitimacy. The results show that the
MEDIA*ETR coefficient is negative but nonsignificant (Table 6).
However, one cannot exclude that this model lacks sufficient sta-
tistical power to reveal such an interaction effect because of the
rather small sample size.
Finally, this study took a closer look at the tone of disclosure.
Since the social (ir)irresponsibility of tax aggressiveness is contro-
versial from different stakeholder perspectives, corporations are
confronted with inconsistent expectations. Whereas one can as-
sume that stakeholders, in general, consider tax payments to be
important for providing public services (e.g., Avi-Yonah, 2008;
Friese et al., 2008; Sikka, 2010), some stakeholders might
perceive paying taxes to reduce social welfare because tax pay-
ments lower innovation and job growth (Davis et al., 2016). These
stakeholders might claim that corporations allocate resources more
efficiently than governments (McGee, 2010). Section 4.2 provides
anecdotal evidence that some corporations utilize sustainability
reports to express a rather negative attitude toward taxation. The
disclosure of negative aspects of taxation among tax-aggressive
corporations would not be in line with legitimacy theory.10
Therefore, all 426 available reports were inspected for negative
statements. The following statements were considered to be
negative: (1) critique of tax payments or the tax burden in general;
(2) critique of the tax system, tax authorities, or the tax legislator;
(3) critique of specific taxes; and (4) disclosure of activities that
10
This valuable point is thanks to an anonymous reviewer.
aimed to lower the tax burden such as lobbying for lower taxes, the
abolition of a specific tax, the implementation of tax credits, or a
more competitive tax system, or lobbying against the imple-
mentation of a specific tax. The negative statements were then
subtracted from the TDI to obtain a TDI that consists only of positive
attitudes (TDI pos. attitudes). Replicating the model shows that the
results are robust to this specification (Table 6) and provide addi-
tional support for legitimacy theory. The slightly higher DAX and
FTSE regression coefficients indicate that mostly US firms had
lower disclosure levels after eliminating negative statements.
5. Conclusions
This research is one of the first that examined the level of tax
disclosure in sustainability reports and its determinants over the
period 2007e2012 in three Western countries. In doing so, it offers
micro-level evidence of whether firms themselves perceive taxes as
being part of their CSR. These findings contribute to the debate on
the unclear relationship between tax payments and CSR as well as
potential national differences in this regard. The analysis shows
that the level of tax disclosure increased significantly over time.
However, around 50% of all corporations were silent on the issue of
corporate taxation. Those corporations that reported on taxation
discussed their tax payments in different ways. In 2012, about 30%
portrayed taxes as a contribution to society and some of them even
disclosed further information on their tax performance, tax
governance, and public policy implications. Others only provided
technical information and disclosed their global tax payments or
mentioned the existence of tax risks but avoided real CSR com-
mitments. On the contrary, some corporations even depicted
corporate tax payments as obstacles to economic growth that
produce negative societal consequences.
The results indicate huge and growing differences in the level of
reporting among the countries studied. Whereas corporations lis-
ted in the UK had the highest level of reporting by far in the data
 I. Hardeck, T. Kirn / Journal of Cleaner Production 133 (2016) 1337e1351
and experienced significant increases over time, the disclosure
level in the US and Germany was rather low and more stable over
time. In the US, several corporations expressed a negative attitude
toward taxes (i.e., they often stated that they lobbied for lower
taxes). In Germany, the firms had a slightly higher level of reporting
than in the US, and the statements were less hostile toward taxa-
tion. German corporations tended to avoid commitments to a so-
cially responsible approach to taxes, in particular to tax
transparency, and the disclosure of lobbying activities.
As predicted by legitimacy and in part by stakeholder theory,
companies with lower ETRs, negative media coverage in tax mat-
ters, and an affiliation with the extractive and high-tech sector
were more likely to have a higher level of tax disclosure. However,
the significantly negative effect of an affiliation with the financial
industry on commitments to a socially responsible approach to
taxes suggests that those targeted by “bad news,” such as media
reports on their involvement in tax havens, do not voluntarily
disclose information. While controlling for tax performance,
negative media coverage, size, financial performance, leverage,
industry, and year effects, a listing on the DAX and particularly the
FTSE positively affected the disclosure level compared to a listing
on the Dow Jones. In addition, UK companies disclosed significantly
more “soft” commitments, whereas US and German companies
avoided these statements to the same extent.
This research provides important implications from a theoret-
ical and a regulatory perspective. The results confirm assumptions
by Davis et al. (2016) that the relationship between tax payments
and CSR is more complex than suggested by parts of the literature.
Prior research highlights varying levels of sustainability reporting
and significant national differences in terms of the importance of
various CSR issues owing to different cultural and social norms or
governmental regulations. This study confirms these findings for
tax payments. Since the firms in the sample faced very similar
disclosure obligations in all three countries during the examination
period, it seems fair to assume that differences in cultural and social
norms particularly affect tax disclosure. The importance of tax se-
crecy and a rather legalistic view on taxation in Germany is re-
flected in companies' focus on technical information that generally
has to be disclosed in the annual report combined with a low
number of commitments to a socially responsible approach to taxes
and especially in their absolute silence on commitments to tax
transparency. A low level of reporting in the US and frequent dis-
closures of lobbying activities for lower taxes are in line with the
prevalent view of taxes as being harmful to social welfare. When it
comes to the UK, the huge pressure on firms exerted by politicians,
media, non-governmental organizations, and the public seems to
have induced firms to disclose a wide range of tax information.
Overall, the results support the findings of legitimacy and stake-
holder theory. Some corporations seem to use the disclosure of tax
information as an impression management strategy instead of
engaging in honest and critical CSR reporting. For instance, they
pride themselves on being taxpayers even though they are liable to
tax anyway.
Given the widespread silence on tax issues and a non-uniform
treatment of taxation in sustainability reports, stakeholder pres-
sure alone seems to be insufficient to provide for comprehensive
voluntary reporting. Increased regulation such as mandatory
country-by-country reporting in the EU and the “large businesses
transparency strategy” in the UK (HM Revenue and Customs, 2015)
could have been the result of prior insufficient voluntary disclosure.
The latter will require large corporations to mandatorily disclose an
annual tax strategy that is approved by their executive boards in
accordance with the Finance Bill 2016.
This research is subject to several limitations and provides
interesting directions for further research. First, its focus on the
1349
largest public corporations of three countries, namely, the US, the
UK, and Germany, could be extended to other countries to deepen
the insight into intercultural differences with regard to corporate
tax payments and CSR. Second, the 90 corporations are represen-
tative of the top-tier firms in the US, the UK, and Germany. How-
ever, even though firm size was controlled for, one should be
cautious to simply generalize the results for large corporations to
smaller firms, which might have a substantially lower level of tax
disclosure. When it comes to determinants of disclosure, the find-
ings in terms of media coverage might not be altogether compa-
rable. A study on the sustainability reporting of small and medium-
sized enterprises (Coppa and Sriramesh, 2013) showed that media
were considered to be a less relevant stakeholder group, and they
were among the less important motivators for engaging in sus-
tainability reporting. The authors partially explained their findings
through a lack of investigative media that focus on smaller firms.
Future research could therefore challenge the findings for smaller
or privately held firms.
Exploring the relation between tax aggressiveness and tax
disclosure by employing qualitative research methods could be
another important field of research. For instance, researchers could
conduct a discourse analysis and gain deeper insight into the tone
of tax disclosure. By using case studies, researchers could shed
further light on the tone of tax disclosure depending on the firm's
tax strategy and media coverage. Finally, this research could be
replicated by using other measures of tax aggressiveness, such as
accusations by tax authorities, to challenge the results.
Acknowledgements
The authors appreciate the helpful comments of two anony-
mous reviewers, the editor Rodrigo Lozano, Christina Elschner,
Tanja Herbert (discussant), Silke Rünger (discussant), participants
at the EIASM 4th Workshop on Current Research in Taxation as well
as the Centre for European Economic Research and University of
Mannheim 4th Workshop on Empirical Tax Research, and work-
shop participants at Westfa €lische Wilhelms-University Münster
and the Centre for Globalisation and Governance. In addition, the
authors would like to thank Logini Yoganathan, Anne Schüring, Lisa
Noerenberg, and Sunit Kamath for their research assistance.
Financial support by the Forschungsfo €rderungsfonds of the Uni-
versity of Liechtenstein (100.000 CHF) and the Kompetenzzentrum
Nachhaltige Universita €t Hamburg (4.300 Euro) are gratefully
acknowledged. This paper previously circulated under the title,
“Assessing the role of taxes in sustainability reporting - Longitu-
dinal and cross-sectional evidence from Germany, the United States
and the United Kingdom.”
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