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The effect of chief financial officers’ accounting expertise on corporate tax avoidance: the role of compensation design

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  • Ming-Chin Chen

    (National Chengchi University)

  • Chia-Wen Chang

    (Ming Chuan University)

  • Mei-Chueh Lee

    (Takming University of Science and Technology)

Abstract

Accounting expertise is closely related to corporate tax planning, and hence, corporate chief financial officers (CFOs) with accounting expertise may have advantages in exploiting tax planning opportunities. By manually collecting CFOs’ autobiographic information and identifying their accounting-related work experience, we empirically examine whether a CFO with accounting expertise is more likely than a CFO without such expertise to exploit tax planning opportunities, resulting in greater corporate tax avoidance. We find that CFOs with accounting expertise are negatively associated with corporate effective tax rates. The average effective tax rate of firms with accounting expert CFOs is approximately 19.4% lower than that of their counterparts with non-accounting expert CFOs, ceteris paribus. Moreover, the abnormal variable compensation of CFOs with accounting expertise is negatively associated with corporate effective tax rates. The results suggest that the accounting expertise and compensation schemes of CFOs can have a significant effect on the aggressiveness of corporate tax planning.

Suggested Citation

  • Ming-Chin Chen & Chia-Wen Chang & Mei-Chueh Lee, 2020. "The effect of chief financial officers’ accounting expertise on corporate tax avoidance: the role of compensation design," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 273-296, January.
    • Handle: RePEc:kap:rqfnac:v:54:y:2020:i:1:d:10.1007_s11156-019-00789-5
    DOI: 10.1007/s11156-019-00789-5
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    Cited by:

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    More about this item

    Keywords

    Tax avoidance; Effective tax rate; Compensation design; Chief financial officer;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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