Environmental, Social, and Governance (ESG) Performance and Corporate Tax Planning Behaviour in Developing Economies: Evidence from Transparency Incentives
Abstract
Purpose: This study examines whether corporate Environmental, Social and Governance (ESG) performance is associated with tax avoidance behaviour among listed firms in African markets. It focuses on institutional environments where enforcement capacity, stakeholder pressure, and governance quality differ from those in developed economies. Design/methodology/approach: Using a balanced panel of 82 manufacturing firms per year from the Nigerian and Egyptian stock exchanges over five years (410 firm-year observations), the study analyses firms with December fiscal year-ends and positive taxable income. ESG data are obtained from Bloomberg, while financial data are sourced from stock exchange disclosures and international databases. Tax avoidance is measured using the Desai and Dharmapala (2006) residual-based book–tax difference model. Pooled ordinary least squares, random-effects, and firm fixed-effects regressions are employed, with robustness checks using cash effective tax rates. Findings: Aggregate ESG performance is positively associated with tax avoidance in pooled regressions; however, the relationship becomes statistically insignificant under firm fixed-effects estimation, suggesting no causal effect at the aggregate level. Disaggregated analysis shows that the social dimension of ESG is positively associated with tax avoidance, particularly among well-governed firms, while environmental and governance dimensions are not significantly related to tax avoidance. Originality: The study provides new evidence from underexplored African markets and highlights how ESG engagement may coexist with tax avoidance as part of broader value-maximizing strategies.