The Incentives for Tax Planning
Journal of Accounting and Economics, Volume 53, Issues 1–2, (Feb–April 2012): 391-411.
Stanford Graduate School of Business Research Paper No. 2032
53 Pages Posted: 10 Jun 2009 Last revised: 6 Nov 2012
Date Written: March 8, 2011
We use a proprietary data set with detailed executive compensation information to examine the relationship between the incentives of the tax director and GAAP and cash effective tax rates, the book-tax gap, and measures of tax aggressiveness. We find that the incentive compensation of the tax director exhibits a strong negative relationship with the GAAP effective tax rate, but little relationship with the other tax attributes. We interpret these results as indicating that tax directors are provided with incentives to reduce the level of tax expense reported in the financial statements.
Keywords: tax director incentives, effective tax rate, book-tax difference
JEL Classification: H25, J33, M41, M52
Suggested Citation: Suggested Citation