IDEAS home Printed from https://ideas.repec.org/a/bla/acctfi/v66y2026i1p286-307.html

CEOs' Internal Connections and Corporate Tax Avoidance

Author

Listed:
  • Aurelius Aaron
  • Rui Ge
  • Chong Wang
  • Feng (Harry) Wu

Abstract

We find that more social connections between a CEO and other top executives in the same firm are associated with more tax avoidance by the firm. This effect holds when several alternative measures of corporate tax avoidance are used. The finding also persists after controlling for potential endogenous effects. The impact of a CEO's internal connections on corporate tax avoidance is more pronounced when the firm operates in a more uncertain environment, when the CEO has a shorter tenure, and when the CEO's wealth is less sensitive to changes in the firm's stock price. Furthermore, we find that corporate tax avoidance induced by CEOs' internal connections generally reduces firm value. Overall, our findings suggest that CEOs' internal connections facilitate collaboration on tax planning within the management team, but the facilitated tax planning primarily harms shareholders' interests.

Suggested Citation

  • Aurelius Aaron & Rui Ge & Chong Wang & Feng (Harry) Wu, 2026. "CEOs' Internal Connections and Corporate Tax Avoidance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 66(1), pages 286-307, March.
    • Handle: RePEc:bla:acctfi:v:66:y:2026:i:1:p:286-307
    DOI: 10.1111/acfi.70123
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/acfi.70123
    Download Restriction: no
    File URL: https://libkey.io/10.1111/acfi.70123?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Chyz, James A., 2013. "Personally tax aggressive executives and corporate tax sheltering," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 311-328.
    2. Choy, Siu Kai & Lai, Tat-Kei & Ng, Travis, 2017. "Do tax havens create firm value?," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 198-220.
    3. Li, Feng & Minnis, Michael & Nagar, Venky & Rajan, Madhav, 2014. "Knowledge, compensation, and firm value: An empirical analysis of firm communication," Journal of Accounting and Economics, Elsevier, vol. 58(1), pages 96-116.
    4. Morck, Randall & Schleifer, Andrei & Vishny, Robert W., 2008. "Management ownership and market valuation: an empirical analysis," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 48(2), April.
    5. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    6. Guan, Yuyan & Su, Lixin (Nancy) & Wu, Donghui & Yang, Zhifeng, 2016. "Do school ties between auditors and client executives influence audit outcomes?," Journal of Accounting and Economics, Elsevier, vol. 61(2), pages 506-525.
    7. Cen, Ling & Maydew, Edward L. & Zhang, Liandong & Zuo, Luo, 2017. "Customer–supplier relationships and corporate tax avoidance," Journal of Financial Economics, Elsevier, vol. 123(2), pages 377-394.
    8. My Nguyen & Justin Hung Nguyen, 2020. "Economic policy uncertainty and firm tax avoidance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3935-3978, December.
    9. Chen, Sheng-Syan & Chen, Yan-Shing & Kang, Jun-Koo & Peng, Shu-Cing, 2020. "Board structure, director expertise, and advisory role of outside directors," Journal of Financial Economics, Elsevier, vol. 138(2), pages 483-503.
    10. Dane M. Christensen & David G. Kenchington & Rick C. Laux, 2022. "How do most low ETR firms avoid paying taxes?," Review of Accounting Studies, Springer, vol. 27(2), pages 570-606, June.
    11. Andrew M. Bauer & Junxiong Fang & Jeffrey Pittman & Yinqi Zhang & Yuping Zhao, 2020. "How Aggressive Tax Planning Facilitates the Diversion of Corporate Resources: Evidence from Path Analysis†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1882-1913, September.
    12. Dane M. Christensen & Dan S. Dhaliwal & Steven Boivie & Scott D. Graffin, 2015. "Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance," Strategic Management Journal, Wiley Blackwell, vol. 36(12), pages 1918-1938, December.
    13. Jing He, 2022. "Executive Network Centrality and Corporate Reporting," Management Science, INFORMS, vol. 68(2), pages 1512-1536, February.
    14. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "Corporate tax avoidance and stock price crash risk: Firm-level analysis," Journal of Financial Economics, Elsevier, vol. 100(3), pages 639-662, June.
    15. John Core & Wayne Guay, 2002. "Estimating the Value of Employee Stock Option Portfolios and Their Sensitivities to Price and Volatility," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(3), pages 613-630, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fangjun Wang & Shuolei Xu & Junqin Sun & Charles P. Cullinan, 2020. "Corporate Tax Avoidance: A Literature Review And Research Agenda," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 793-811, September.
    2. Chen, Linda H. & Jiang, George J. & Wang, Weiwei & Zhang, Joseph H., 2025. "The impact of profitability pressure and capital market valuation on tax haven engagement," Advances in accounting, Elsevier, vol. 68(C).
    3. Al Mamun, Md & Balachandran, Balasingham & Duong, Huu Nhan, 2020. "Powerful CEOs and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 62(C).
    4. Francis, Bill B. & Hasan, Iftekhar & Sun, Xian & Wu, Qiang, 2016. "CEO political preference and corporate tax sheltering," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 37-53.
    5. Bettis, J. Carr & Bizjak, John & Coles, Jeffrey L. & Kalpathy, Swaminathan, 2018. "Performance-vesting provisions in executive compensation," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 194-221.
    6. Moeller, Thomas, 2005. "Let's make a deal! How shareholder control impacts merger payoffs," Journal of Financial Economics, Elsevier, vol. 76(1), pages 167-190, April.
    7. Henrik Cronqvist & Rüdiger Fahlenbrach, 2009. "Large Shareholders and Corporate Policies," The Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 3941-3976, October.
    8. Huang, Minjie & Kubick, Thomas R. & Tseng, Kevin, 2021. "Technology spillovers and the duration of executive compensation," Journal of Banking & Finance, Elsevier, vol. 131(C).
    9. Hu, Gang & Liu, Yiye & Wang, Jacqueline Wenjie & Zhou, Gaoguang & Zhu, Xindong, 2022. "Insider ownership and stock price crash risk around the globe," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    10. James, Hui & Benson, Bradley W. & Wu, Chen (Ken), 2017. "Does CEO ownership affect payout policy? Evidence from using CEO scaled wealth-performance sensitivity," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 328-345.
    11. Mohamad Mazboudi & Salim Chahine & Yiwei Fang & Mingying Cheng, 2025. "Do high‐centrality CEOs influence audit outcomes?," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 34(1), pages 3-38, February.
    12. Harris, Oneil & Karl, J. Bradley & Lawrence, Ericka, 2019. "CEO compensation and earnings management: Does gender really matters?," Journal of Business Research, Elsevier, vol. 98(C), pages 1-14.
    13. Srinidhi, Bin & Liao, Qunfeng, 2020. "Family firms and crash risk: Alignment and entrenchment effects," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(2).
    14. Tong, Zhenxu, 2008. "Deviations from optimal CEO ownership and firm value," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2462-2470, November.
    15. Dayanandan, Ajit & Donker, Han & Nofsinger, John, 2019. "The role of caste for board membership, CEO, and interlocking," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 29-41.
    16. Chris Veld & Betty H.T. Wu, 2014. "What Drives Executive Stock Option Backdating?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(7-8), pages 1042-1070, September.
    17. Ferreira, Daniel & Athanasakou, Vasiliki & Goh, Lisa, 2017. "Changes in CEO Stock Option Grants: A Look at the Numbers," CEPR Discussion Papers 12318, Centre for Economic Policy Research.
    18. Waqar Ahmed & Richard Taffler & Onur Kemal Tosun, 2026. "Executive compensation and the credibility of share buyback announcements," Review of Quantitative Finance and Accounting, Springer, vol. 66(1), pages 119-154, January.
    19. Li, Zhichuan Frank & Lin, Shannon & Sun, Shuna & Tucker, Alan, 2018. "Risk-adjusted inside debt," Global Finance Journal, Elsevier, vol. 35(C), pages 12-42.
    20. Hutchinson, Marion & A Gul, Ferdinand, 2006. "The effects of executive share options and investment opportunities on firms’ accounting performance: Some Australian evidence," The British Accounting Review, Elsevier, vol. 38(3), pages 277-297.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:acctfi:v:66:y:2026:i:1:p:286-307. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaanzea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.