Abstract

http://ssrn.com/abstract=2252682
 
 

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Corporate Governance, Incentives, and Tax Avoidance


Chris Armstrong


University of Pennsylvania - Accounting Department

Jennifer L. Blouin


University of Pennsylvania - Accounting Department

Alan D. Jagolinzer


University of Colorado - Leeds School of Business

David F. Larcker


Stanford University - Graduate School of Business

April 17, 2013

Rock Center for Corporate Governance at Stanford University Working Paper No. 136

Abstract:     
This paper examines the link between corporate governance, managerial incentives, and tax avoidance. Similar to other investment opportunities, unresolved agency problems may cause managers to over- or under-invest in tax avoidance relative to the preferences of shareholders. Using quantile regression, we find that the impact of corporate governance on tax avoidance is most pronounced in the upper and lower tails of the tax avoidance distribution, but not at the mean or median of this distribution.

Specifically, we find a positive relation between the financial sophistication and independence of boards and tax avoidance in the upper tail of the tax avoidance distribution, but a negative relation in the lower tail of the tax avoidance distribution. However, we find no relation between corporate governance and tax avoidance and either the conditional mean or median of the tax avoidance distribution. These results suggest that corporate governance tends to decrease extremely high levels of tax avoidance and increase extremely low levels of tax avoidance, which may be symptomatic of over- and under-investment, respectively, by managers. Our results also suggest that inferences about these relations that are drawn from the conditional mean and median and unlikely to be representative across the entire tax avoidance distribution.

Number of Pages in PDF File: 36

Keywords: Tax aggressiveness, FIN 48, tax avoidance, CEO incentives, corporate governance

JEL Classification: G34, H25, H26, K34, M41

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Date posted: April 18, 2013  

Suggested Citation

Armstrong, Chris and Blouin, Jennifer L. and Jagolinzer, Alan D. and Larcker, David F., Corporate Governance, Incentives, and Tax Avoidance (April 17, 2013). Rock Center for Corporate Governance at Stanford University Working Paper No. 136. Available at SSRN: http://ssrn.com/abstract=2252682 or http://dx.doi.org/10.2139/ssrn.2252682

Contact Information

Chris S. Armstrong (Contact Author)
University of Pennsylvania - Accounting Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Jennifer L. Blouin
University of Pennsylvania - Accounting Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Alan D. Jagolinzer
University of Colorado - Leeds School of Business ( email )
419 UCB
Boulder, CO 80309-0419
United States
David F. Larcker
Stanford University - Graduate School of Business ( email )
Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

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