Overconfidence and Aggressive Corporate Tax Policy
University of Tennessee
Fabio B. Gaertner
University of Wisconsin - Madison - Department of Accounting and Information Systems
Nanyang Technological University (NTU)
University of Florida - Fisher School of Accounting
September 15, 2014
We investigate whether firms with overconfident CEOs pursue more aggressive tax positions and yet assign high expectations of their final realizability, even if these positions were to be audited by a relevant taxing authority. In our empirical tests we first document positive associations between proxies for the aggressiveness of firms’ tax positions and overconfidence. We then test for associations between overconfidence and the financial reporting of uncertain tax benefits under FIN 48. Prior tax aggressiveness research leads to the expectation of a similarly positive association with uncertain tax benefits. Instead, we find that the same group of firms with overconfident CEOs report lower uncertain tax benefits in the financial statements. This asymmetric result between tax policy choices and the financial reporting of those choices by firms with overconfident CEOs should be of interest to policy and rule makers, thus advancing the overconfidence, tax aggressiveness, and financial reporting literatures.
Number of Pages in PDF File: 49
Keywords: Overconfidence, Tax aggressiveness, FIN48
JEL Classification: D80, M40, H25working papers series
Date posted: March 14, 2014 ; Last revised: November 23, 2014
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