The effect of ESG performance on tax avoidance: the moderating role of earnings management in ASEAN firms

This study examines whether Environmental, Social, and Governance (ESG) performance reduces corporate tax avoidance in ASEAN non-financial firms and whether earnings management moderates this relationship. Using 2747 firm-year observations from six ASEAN countries over the period 2015–2023, tax avoidance is measured using the inverse of GAAP ETR and the inverse of Cash ETR, while earnings management is proxied by discretionary accruals. Fixed-effects regression results show that ESG performance is associated with lower tax avoidance, as measured by the inverse of GAAP ETR. In contrast, no significant relationship is found when using the inverse of Cash ETR. These findings suggest that ESG effectively constrains accounting-based tax avoidance. However, it is not consistently reflected in actual cash tax payments. Moreover, earnings management does not moderate the ESG-tax avoidance relationship, suggesting that accrual-based manipulation does not alter the influence of ESG on firms’ tax behavior. By integrating ESG, earnings management, and tax avoidance into a unified cross-country framework, this study contributes new empirical evidence for the ASEAN context. The findings offer practical implications for regulators seeking to strengthen tax governance and align sustainability commitments with actual fiscal compliance.