The Role of Managerial Ability in Corporate Tax Avoidance

Allison Koester (), Terry Shevlin () and Daniel Wangerin ()
Additional contact information
Allison Koester: McDonough School of Business, Georgetown University, Washington, DC 20057
Terry Shevlin: Paul Merage School of Business, University of California, Irvine, Irvine, California 92697
Daniel Wangerin: Eli Broad College of Business, Michigan State University, East Lansing, Michigan 48824

Management Science, 2017, vol. 63, issue 10, 3285-3310

Abstract: Most prior studies model tax avoidance as a function of firm-level characteristics and do not consider how individual executive characteristics affect tax avoidance. This paper investigates whether executives with superior ability to efficiently manage corporate resources engage in greater tax avoidance. Our results show that moving from the lower to upper quartile of managerial ability is associated with a 3.15% (2.50%) reduction in a firm’s one-year (five-year) cash effective tax rate. We examine how higher-ability managers reduce income tax payments and find that they engage in greater state tax planning activities, shift more income to foreign tax havens, make more research and development credit claims, and make greater investments in assets that generate accelerated depreciation deductions. Identifying a manager characteristic related to firms’ tax policy decisions adds to our understanding of the factors that explain the substantial variation in corporate income tax payments across firms.

Keywords: tax avoidance; management style; managerial ability (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (89)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2016.2510 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:63:y:2017:i:10:p:3285-3310

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().