The impact of stakeholder orientation on tax avoidance: Evidence from a natural experiment

We study the effect of stakeholder orientation on corporate tax avoidance. Using the staggered passage of constituency statutes across U.S. states between 1983 and 2006, we show that greater stakeholder orientation results in increased tax avoidance. We further find greater tax avoidance among firms with limited financial resources and that employees benefit from the change. Our results are consistent with stakeholder salience theory that resource-constrained managers prioritize the claims of salient stakeholders, such as employees, at the expense of secondary stakeholders, such as the government.