CEO Early-Life Disaster Experience and Tax Avoidance: Chinese Evidence

Jianqun Xi () and He Xiao
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Jianqun Xi: Faculty of Business and Management, BNU-HKBU United International College, Zhuhai 519088, P. R. China
He Xiao: Faculty of Business and Management, BNU-HKBU United International College, Zhuhai 519088, P. R. China

The International Journal of Accounting (TIJA), 2025, vol. 60, issue 01, 1-38

Abstract: SynopsisThe research problemThis study examines the impact of chief executive officers (CEOs)’ early-life disaster experiences on corporate tax-avoidance behaviors and explores the mechanisms through which these experiences influence these behaviors. We use the Great Chinese Famine of 1959–1961 (hereafter the Great Famine) as an indicator of early-life disaster experience.Motivation or theoretical reasoningOur study is motivated by the following reasons. First, like many major economies worldwide, corporate income tax is an important source of tax revenue in China. The financial impact of corporate income tax on a country’s economy is enormous. Second, the Great Famine was one of the most destructive natural disasters in human history, which is likely to have a lifelong influence on CEOs who lived through the disaster as children and teenagers. Third, corporate tax strategy is a significant accounting, financing, and managerial behavior of firms that is influenced by multiple internal and external factors. However, there are limited findings on the impact of CEOs’ early-life disaster experience on corporate tax decisions. The consequences of this impact remain unclear.The test hypothesesWe hypothesize that CEOs’ early-life famine experience mitigates corporate tax aggressiveness. We also consider the alternative hypothesis that CEOs’ early-life famine experience increases corporate tax aggressiveness.Target populationOur sample includes Chinese listed firms from 2013 to 2020 led by CEOs who have or who do not have early-life disaster experiences.Adopted methodologyWe employed ordinary least square regressions in our analyses.AnalysesSince the Great Famine occurred between 1959 and 1961, we considered CEOs to have experienced famine if they were born prior to or in the year 1961, in a province affected by the Great Famine (e.g., Hu et al., 2020; Zhang, 2017). We identified a province as significantly affected by famine if its abnormal death rate was greater than the median abnormal death ratio of all Chinese provinces during the period of famine. Following Dyreng et al. (2010), Hoi et al. (2013), Koester et al. (2017), and Rego & Wilson (2012), we used effective tax rate as the first proxy of tax avoidance for a firm. Additionally, in line with Desai & Dharmapala (2006) and Hoi et al. (2013), we used the discretionary book-tax differences of firms as an alternative proxy to measure corporate tax avoidance.FindingsThe findings indicate that CEOs who experienced the Great Famine at a young age significantly reduced their firms’ tax-avoidance efforts. Furthermore, the negative association between CEOs’ early-life famine experiences and corporate tax-avoidance behaviors is more pronounced for companies with higher independent director ratios. These negative associations appear more obvious for firms with CEOs who experienced famine early in life and for females. The economic mechanism of the findings demonstrate that CEOs’ famine experiences make them more conservative in investing in innovative projects; they are more likely to fulfill corporate social responsibility and work in state-owned enterprises. Furthermore, firms with lower innovation expenditure, effective corporate social performance, and government ownership are less likely to display tax-avoidance behaviors.

Keywords: CEO early experiences; tax avoidance; innovation; corporate social responsibility; state-owned enterprises (search for similar items in EconPapers)
JEL-codes: G30 M41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S1094406024500069

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