ESG Disclosure and Tax Avoidance: Evidence from Malaysia

Understanding the relationship between ESG disclosures and corporate tax strategies is crucial as companies are under growing pressure to be transparent about their environmental, social, and financial practices. This study investigates the relationship between Environmental, Social, and Governance (ESG) disclosure scores and tax avoidance among the 30 largest market-capitalized companies listed in Malaysia from 2017 to 2022. This study employed Ordinary Least Squares (OLS) regression to determine the relationship between the variables. Then, this study applied diagnostic checks for multicollinearity, heteroscedasticity, and serial correlation. The findings reveal a significant negative relationship between environmental disclosure scores and tax avoidance, indicating that companies with higher environmental transparency are less likely to engage in tax avoidance. Conversely, social disclosure scores show a significant positive relationship with tax avoidance, suggesting that socially transparent companies might still engage in tax-avoidance activities. Governance disclosure scores, however, do not show a statistically significant relationship with tax avoidance. These results reflected the complex dynamics between ESG practices and corporate tax strategies. Lastly, this study contributes to the literature by providing insights into the impact of ESG disclosures on tax avoidance in Malaysia. Future research is recommended to explore these dynamics in different sectors and regions, as well as to examine the role of regulatory frameworks in influencing the relationship between ESG practices and tax avoidance.