ABSTRACT

Various theories have been employed to provide rationales for companies’ CSR initiatives and disclosures. These theories explain the increasing prevalence of CSR through the growth in the demand for CSR information and the benefits companies can gain from this additional disclosure. The stakeholder, legitimacy and institutional theories are socio-economic theories that draw on the fundamental assumption of the political economy framework. According to the political economy framework, “Society, politics and economics are inseparable and economic issues cannot meaningfully be investigated in the absence of considerations about the political, social and institutional framework in which the economic activity takes place” (Deegan, 2002, p. 292). Accordingly, by considering the aspects going beyond the purely economic and financial realm, the concept of CSR and the motivations behind CSR reporting can be more comprehensively understood. Additionally, this helps to account for possible variation across industries or countries. Agency theory, signalling and proprietary costs are economic theories that are useful for understanding factors resulting in the variance of amount and characteristics of disclosures across individual companies. Furthermore, implications of information overload theory to CSR and tax reporting are discussed. In this chapter, we go through each theory and concept and apply them to CSR and tax transparency, providing examples from tax disclosures.