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CORPORATE SOCIAL RESPONSIBILITY, EXECUTIVE PAY, CORPORATE TAX AVOIDANCE AND FINANCIAL PERFORMANCE: THE MODERATING EFFECTS OF GOVERNANCE AND CULTURE

Elkhashen, Emad M. S. (2019) CORPORATE SOCIAL RESPONSIBILITY, EXECUTIVE PAY, CORPORATE TAX AVOIDANCE AND FINANCIAL PERFORMANCE: THE MODERATING EFFECTS OF GOVERNANCE AND CULTURE. Doctoral thesis, University of Huddersfield.

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Abstract

This thesis aims to explore the associations between Corporate Social Responsibility (CSR), executive pay, corporate tax avoidance and corporate financial performance in tourism-related firms. This is done through three papers, which focus on managers’ behaviour and motivation in different aspects of corporate decisions, highlighting the possible effects of sectorial characteristics, particularly tourism sector characteristics, in shaping corporate decisions in these constructs.

The first paper examines the link between CSR and corporate tax avoidance, and the moderating effect of corporate governance and cultural values on this link. The main aim of this paper is to explore whether responsible tourism-related firms view tax payments as part of their social responsibility. Accordingly, research hypotheses were developed based on a multi-theoretical framework including insights from legitimacy, stakeholder and agency theories. Based on an international sample of tourism-related firms over the period 2010-2016, the findings of this paper reveal that tourism-related firms generally do not seem to perceive tax payments as part of their social responsibility; the results show a positive association between CSR and corporate tax avoidance. However, later evidence found that this positive association is driven mainly by less responsible and poorly governed firms, whereas highly responsible and well-governed firms showed a negative association for this link, suggesting a positive effect of corporate governance on the CSR-tax link. Further, the results show that cultural values, particularly individualism/collectivism, seem to affect the link between CSR and corporate tax avoidance. Generally, the results provide some evidence that sectorial characteristics might affect the CSR-tax link. These findings generally support the theoretical frameworks of legitimacy and stakeholder theories.

The second paper investigates the link between long-term executive pay and corporate tax avoidance, and the moderating effect of corporate governance and cultural values on this link. The main aim of this paper is to explore whether linking executive wealth to firm value motivates managers to engage in corporate tax avoidance as a tool for increasing firm value. A multi-theoretical framework based on managerial power, optimal contracting and agency theories was employed in developing the research hypotheses. Based on the international sample of tourism-related firms, the findings show a positive association between long-term executive pay and corporate tax avoidance. However, extra analyses showed that this result is driven by poorly governed firms, whereas well-governed firms show no association, consistent with these firms being more likely to avoid the risks associated with engaging in tax avoidance. Further, the results show that cultural values are likely to affect the link between long-term executive pay and corporate tax avoidance. The findings provide evidence that sectorial characteristics, particularly the levels of financial and business risk, seem to affect the association between long-term executive pay and corporate tax avoidance. The findings generally provide evidence that supports managerial power and rent extraction theoretical frameworks.

The final paper explores the link between long-term executive pay and CSR, and the link between CSR and firm financial performance. Further, it examines the moderating effect of corporate governance and cultural values on these links. The main aim of this paper is to explore whether tying executive wealth to firm value motivates executives to engage in CSR as a tool for promoting long-term firm performance. It also aims to investigate whether engaging in CSR enhances firm financial performance. Accordingly, research hypotheses were developed based on a multi-theoretical framework, including insights from agency, stakeholder and stewardship theories. The results of this study show a positive impact of long-term executive pay on CSR among well-governed firms, but no significant association among poorly governed firms. Further, the findings show that CSR has a positive effect on subsequent firm financial performance among well-governed firms, but no significant association among poorly governed firms. The findings also show that cultural values seem to play a crucial role in the associations among long-term executive pay, CSR and firm financial performance. The findings seem to support the theoretical framework of agency theory and the notion that a strong corporate governance system can align managers’ interests with those of shareholders.

The findings of this thesis are robust across different statistical techniques, different firm- and country-level control variables and alternative measurements. These findings suggest that long-term executive pay can be used as an effective tool in aligning managers’ interests with those of both shareholders and stakeholders. These findings also suggest that tourism-related firms should be careful when designing executive compensation contracts, considering the cultural values of executives and the acceptable level of risk. Further, tourism-related firms are encouraged to strengthen their corporate governance systems and motivate their managers to engage in CSR as effective tools for enhancing firm financial performance.

Item Type: Thesis (Doctoral)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Schools: Huddersfield Business School
Depositing User: Rebecca Hill
Date Deposited: 24 May 2019 11:30
Last Modified: 24 May 2019 11:45
URI: http://eprints.hud.ac.uk/id/eprint/34891

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