TY - JOUR
T1 - CEO risk-seeking and corporate tax avoidance
T2 - Evidence from pilot CEOs
AU - Baghdadi, Ghasan
AU - Podolski, Edward J.
AU - Veeraraghavan, Madhu
N1 - Funding Information:
We thank Savitha Heggede, Meghana Mohan, Anshuman Mohanty, Mitesh Kumar and Satyaki Datta for excellent research assistance. Veeraraghavan thanks the T A Pai Chair Professorship for funding support. We also thank Yangyang Chen, Matt Levine, Ronald Masulis, Suman Neupane, Jeffrey Pittman, David Yermack, and participants at the UNSW Business School and RMIT University seminar series for helpful comments. The usual disclaimer applies.
Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2022/10
Y1 - 2022/10
N2 - This paper investigates whether executives with risk-seeking tendencies engage in greater tax avoidance and find that CEOs who possess private pilot licenses (our proxy for risk-seeking) significantly reduce firm's cash effective tax rate. Risk-seeking has a considerably stronger effect on tax avoidance compared with other commonly studied executive characteristics, including overconfidence and ability. Cross-sectional tests reveal that the baseline results are not sensitive to managerial remuneration incentives, suggesting that intrinsic incentives derived from endowed traits are not easily moderated by extrinsic motivation from compensation contracts. Additionally, we find that managerial oversight helps channel CEOs risk-seeking tendencies towards value creating tax planning endeavors. Further tests reveal that risk-seeking CEOs reduce effective tax rates only when they can engage in complex, risky, and intricate income shifting strategies. Taken together, our paper highlights the role and contexts in which risk-seeking tendencies influence corporate tax planning activities.
AB - This paper investigates whether executives with risk-seeking tendencies engage in greater tax avoidance and find that CEOs who possess private pilot licenses (our proxy for risk-seeking) significantly reduce firm's cash effective tax rate. Risk-seeking has a considerably stronger effect on tax avoidance compared with other commonly studied executive characteristics, including overconfidence and ability. Cross-sectional tests reveal that the baseline results are not sensitive to managerial remuneration incentives, suggesting that intrinsic incentives derived from endowed traits are not easily moderated by extrinsic motivation from compensation contracts. Additionally, we find that managerial oversight helps channel CEOs risk-seeking tendencies towards value creating tax planning endeavors. Further tests reveal that risk-seeking CEOs reduce effective tax rates only when they can engage in complex, risky, and intricate income shifting strategies. Taken together, our paper highlights the role and contexts in which risk-seeking tendencies influence corporate tax planning activities.
UR - https://www.scopus.com/pages/publications/85137387567
UR - https://www.scopus.com/pages/publications/85137387567#tab=citedBy
U2 - 10.1016/j.jcorpfin.2022.102282
DO - 10.1016/j.jcorpfin.2022.102282
M3 - Article
AN - SCOPUS:85137387567
SN - 0929-1199
VL - 76
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 102282
ER -