Overconfidence and 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
January 13, 2015
Using a sample of firms experiencing exogenous CEO departures, we investigate whether firms with overconfident CEOs avoid more taxes. Overconfident CEOs are more likely to overestimate the net benefits from investments in tax planning and thus avoid more taxes. Consistent with this prediction we find robust evidence of a positive relation between proxies for corporate level tax avoidance and CEO overconfidence. Because our empirical tests use a panel of firm-years with exogenous CEO changes and include controls for stationary firm-effects, we are able to isolate the role of an idiosyncratic personality trait (overconfidence) on corporate tax outcomes, thus adding to the literatures on overconfidence and tax avoidance.
Number of Pages in PDF File: 38
Keywords: Overconfidence, Tax avoidance
JEL Classification: D80, M40, H25
Date posted: March 14, 2014 ; Last revised: January 14, 2015
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