PBESProceedings of Business and Economic Studies2209-26412209-265XBio-Byword Scientific Publishing Pty. Ltd.10.26689/pbes.v8i6.12611ArticleVAT Neutrality and Corporate Social Responsibility: Evidence from China’s 2018 VAT Credit Refund Reformhttps://artdesignp.com/journal/PBES/8/6/10.26689/pbes.v8i6.12611ZhangNingning,GuanXiaoyan2025862025-11-06Taking China’s 2018 value-added tax (VAT) credit refund reform as an exogenous shock to improve VAT neutrality, we use a difference-in-differences approach to explore how the reform affected corporate social responsibility (CSR). We find that the reform motivated firms to improve CSR performance. The reform has a “resource” effect, increasing internal funds and reducing financing costs, thereby enhancing firms’ ability to undertake CSR. The reform also has a “reputation” effect, stimulating firms’ willingness to engage in CSR to improve their reputations. CSR following the reform increases firm values and reduces bankruptcy risk. Our study provides fresh insights into VAT neutrality theory and is a reference for tax reform in emerging economies.

Gillian S, Koch A, Starks L, 2021, Firms and Social Responsibility: A Review of ESG and CSR Research in Corporate Finance. J. Corp. Finan, 2021(66): 101889.

Guo Y, Li X, 2023, The Impact of Greater Vat Tax Neutrality on Total Factor Productivity: Evidence from China’s Vat Credit Refund Reform in 2018. Econ. Anal Policy, 2023(78): 922–936.

Kong D, Xiong M, Qin N, 2022, Business Tax Reform and CSR Engagement: Evidence From China. Int. Rev. Financ. Anal, 2022(82): 102178.

Huang K, Wang Y, 2022, Do Reputation Concerns Motivate Voluntary Initiation of Corporate Social Responsibility Reporting? Evidence from China. Finan. Res. Lett. 2022(47): 102611.

Kong W, 2023, The Impact of ESG Performance on Debt Financing Costs: Evidence from Chinese Family Business. Finan. Res. Lett, 2023(55): 103949.

Hu J, Zou Q, Yin Q, 2023, Research on the Effect of ESG Performance on Stock Price Synchronicity: Empirical Evidence from China’s Capital Markets. Finan. Res. Lett, 2023(55): 103847.