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The incentives for tax planning

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  • Armstrong, Christopher S.
  • Blouin, Jennifer L.
  • Larcker, David F.

Abstract

We use a proprietary data set with detailed executive compensation information to examine the relationship between the incentives of the tax director and GAAP and cash effective tax rates, the book-tax gap, and measures of tax aggressiveness. We find that the incentive compensation of the tax director exhibits a strong negative relationship with the GAAP effective tax rate, but little relationship with the other tax attributes. We interpret these results as indicating that tax directors are provided with incentives to reduce the level of tax expense reported in the financial statements.

Suggested Citation

  • Armstrong, Christopher S. & Blouin, Jennifer L. & Larcker, David F., 2012. "The incentives for tax planning," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 391-411.
    • Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:391-411
    DOI: 10.1016/j.jacceco.2011.04.001
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    More about this item

    Keywords

    Tax director incentives; Equity incentives; Effective tax rate; Book-tax difference;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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