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CEO political preference and corporate tax sheltering

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  • Francis, Bill B.
  • Hasan, Iftekhar
  • Sun, Xian
  • Wu, Qiang

Abstract

We show that firms led by politically partisan CEOs are associated with a higher level of corporate tax sheltering than firms led by nonpartisan CEOs. Specifically, Republican CEOs are associated with more corporate tax sheltering even when their wealth is not tied with that of shareholders and when corporate governance is weak, suggesting that their tax sheltering decisions could be driven by idiosyncratic factors such as their political ideology. We also show that Democratic CEOs are associated with more corporate tax sheltering only when their stock-based incentives are high, suggesting that their tax sheltering decisions are more likely to be driven by economic incentives. In sum, our results support the political connection hypothesis in general but highlight that the specific factors driving partisan CEOs' tax sheltering behaviors differ. Our results imply that it may cost firms more to motivate Democratic CEOs to engage in more tax sheltering activities because such decisions go against their political beliefs regarding tax policies.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:corfin:v:38:y:2016:i:c:p:37-53
    DOI: 10.1016/j.jcorpfin.2016.03.003
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    Cited by:

    1. Julie Berry Cullen & Nicholas Turner & Ebonya Washington, 2018. "Political Alignment, Attitudes Toward Government and Tax Evasion," CESifo Working Paper Series 6905, CESifo Group Munich.
    2. repec:eee:corfin:v:45:y:2017:i:c:p:162-175 is not listed on IDEAS

    More about this item

    Keywords

    Political preference; Tax sheltering; CEO; Democrats; Republicans; Incentives;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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