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Corporate Governance, Incentives, and Tax Avoidance

Author

Listed:
  • Armstrong, Christopher S.

    (University of PA)

  • Blouin, Jennifer L.

    (University of PA)

  • Jagolinzer, Alan D.

    (University of CO)

  • Larcker, David F.

    (Rock Center for Corporate Governance, Stanford University)

Abstract

We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over- and under-investment by managers.

Suggested Citation

  • Armstrong, Christopher S. & Blouin, Jennifer L. & Jagolinzer, Alan D. & Larcker, David F., 2015. "Corporate Governance, Incentives, and Tax Avoidance," Research Papers 2134, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:2134
    as

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    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/corporate-governance-incentives-tax-avoidance
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    References listed on IDEAS

    as
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    6. Crocker, Keith J. & Slemrod, Joel, 2005. "Corporate tax evasion with agency costs," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1593-1610, September.
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    11. Slemrod, Joel, 2004. "The Economics of Corporate Tax Selfishness," National Tax Journal, National Tax Association, vol. 57(4), pages 877-899, December.
    12. Minnick, Kristina & Noga, Tracy, 2010. "Do corporate governance characteristics influence tax management?," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 703-718, December.
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    16. Armstrong, Christopher S. & Larcker, David F. & Ormazabal, Gaizka & Taylor, Daniel J., 2012. "The Relation between Equity Incentives and Misreporting: The Role of Risk-Taking Incentives," Research Papers 2120, Stanford University, Graduate School of Business.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Marcel Ausloos & Roy Cerqueti & Tariq A. Mir, 2017. "Data science for assessing possible tax income manipulation: The case of Italy," Papers 1709.02129, arXiv.org.
    2. Blaufus, Kay & Möhlmann, Axel & Schwäbe, Alexander, 2016. "Corporate tax minimization and stock price reactions," arqus Discussion Papers in Quantitative Tax Research 204, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. repec:eco:journ1:2017-04-74 is not listed on IDEAS
    4. Huseynov, Fariz & Sardarli, Sabuhi & Zhang, Wei, 2017. "Does index addition affect corporate tax avoidance?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 241-259.
    5. Philipp Meyer-Brauns, 2014. "Financial Contracting with Tax Evaders," Working Papers tax-mpg-rps-2014-01, Max Planck Institute for Tax Law and Public Finance.
    6. Kubick, Thomas R. & Lockhart, G. Brandon, 2016. "Do external labor market incentives motivate CEOs to adopt more aggressive corporate tax reporting preferences?," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 255-277.
    7. Overesch Michael, 2016. "Steuervermeidung multinationaler Unternehmen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(2), pages 129-143, July.
    8. repec:taf:oabmxx:v:3:y:2016:i:1:p:1248644 is not listed on IDEAS
    9. repec:eee:pacfin:v:43:y:2017:i:c:p:15-36 is not listed on IDEAS
    10. Melanie Steinhoff, 2015. "Management Compensation, Monitoring and Aggressive Corporate Tax Planning," CQE Working Papers 4115, Center for Quantitative Economics (CQE), University of Muenster.
    11. Steinhoff, Melanie, 2015. "Management compensation, monitoring and aggressive corporate tax planning," CAWM Discussion Papers 83, University of Münster, Center of Applied Economic Research Münster (CAWM).
    12. Michael, Bryane & Goo, Say-Hak, 2017. "Do Corporate Governance Practices In One Jurisdiction Affect Another One? Lessons from the Panama Papers," EconStor Preprints 173676, ZBW - German National Library of Economics.
    13. Leon Li & Nen-Chen Richard Hwang, 2017. "Prospect Theory and Earnings Manipulation: Examination of the Non-Uniform Relationship between Earnings Manipulation and Stock Returns Using Quantile Regression," Working Papers in Economics 17/25, University of Waikato.
    14. Kiesewetter, Dirk & Manthey, Johannes, 2017. "The relationship between corporate governance and tax avoidance - evidence from Germany using a regression discontinuity design," arqus Discussion Papers in Quantitative Tax Research 218, arqus - Arbeitskreis Quantitative Steuerlehre.
    15. repec:eee:ecofin:v:42:y:2017:i:c:p:374-392 is not listed on IDEAS
    16. Meyer-Brauns, Philipp, 2014. "Financial Contracting with Tax Evaders," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100524, Verein für Socialpolitik / German Economic Association.

    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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