CEO political preference and corporate tax sheltering

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

No 5/2016, Bank of Finland Research Discussion Papers from Bank of Finland

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.

JEL-codes: G21 G32 H26 P16 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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