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Overconfident CEOs and Corporate Tax Avoidance

Ofuan James Ilaboya () and Edosa Aronmwan
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Ofuan James Ilaboya: University of Benin

The Journal of Accounting and Management, 2021, issue 2(11), 70-80

Abstract: The upper echelon theory predicts that the personalities, attributes, and skills of the managerial cadre should have an influencing role on the culture, practices, and outcomes within an organisation. In light of this prediction, this paper examines how overconfident CEOs may affect tax avoidance practices. Tax avoidance was captured using the novel measure developed by Henry and Sansing while CEO overconfidence was captured using firm-level investment. Based on the analysis of 660 firm-year observations of 66 nonfinancial firms, the study found that overconfident CEOs are associated with corporate tax avoidance. This finding is consistent with the upper echelon theory and provides understanding on the influence that an overconfident CEO has towards tax avoidance. The study recommends that tax regulators can employ the technique of CEO profiling as a preliminary selection tool that can be used to select companies for random tax audits and investigations.

Keywords: CEO attributes; Tax aggressiveness; Optimism; Upper echelon; Narcissism (search for similar items in EconPapers)
Date: 2021
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Handle: RePEc:dug:jaccma:y:2021:i:2:p:70-80