Original Research

The correlation between environmental, social and governance ratings and the transparency in Johannesburg Stock Exchange companies’ tax practices

Cara Thiart
South African Journal of Economic and Management Sciences | Vol 26, No 1 | a4886 | DOI: https://doi.org/10.4102/sajems.v26i1.4886 | © 2023 Cara Thiart | This work is licensed under CC Attribution 4.0
Submitted: 21 October 2022 | Published: 23 May 2023

About the author(s)

Cara Thiart, School of Accountancy, Faculty of Economic and Management Sciences, Stellenbosch University, Stellenbosch, South Africa

Abstract

Background and aim: The study explores the correlation between environmental, social and governance (ESG) ratings and the extent of corporate tax transparency to investigate whether ESG ratings are indicative of transparent corporate tax practices. To gain more insight, the correlation exploration is extended to the ratings achieved in the governance category and the transparency and reporting subcategory included in the overall ESG rating.

Setting and method: The extent of corporate tax transparency disclosures in the corporate reports of 112 companies, listed on the Johannesburg Stock Exchange (JSE) on 28 February 2022, was assessed using a content analysis. The correlation between the ESG ratings and the extent of corporate tax transparency of these companies was then explored through correlation analysis.

Results: The study provides evidence of significant correlation between overall ESG ratings and corporate tax transparency. However, no correlation was found between the ratings achieved in the governance category, or the transparency and reporting subcategory and corporate tax transparency. The latter might, however, be explained by the negatively skewed distributions of the ratings achieved in the governance category and the transparency and reporting subcategory.

Contribution and conclusion: The study provides persuasive evidence that ESG ratings can be used as indicators of transparent corporate tax practices. It might provide valuable insight to boards of companies about the correlation between ESG ratings and the transparency of tax practices, encouraging them to incorporate tax governance as part of the ESG agenda. Additionally, it may be utilised by investors when making investment decisions.


Keywords

environmental, social and governance (ESG); corporate tax transparency; tax governance; transparency and reporting; corporate social responsibility; Johannesburg Stock Exchange (JSE); South Africa

JEL Codes

M41: Accounting; M48: Government Policy and Regulation; M49: Other

Sustainable Development Goal

Goal 11: Sustainable cities and communities

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