The Incentives for Tax Planning

Journal of Accounting and Economics, Volume 53, Issues 1–2, (Feb–April 2012): 391-411.

Rock Center for Corporate Governance at Stanford University Working Paper No. 56

Stanford Graduate School of Business Research Paper No. 2032

53 Pages Posted: 10 Jun 2009 Last revised: 6 Nov 2012

Chris Armstrong

University of Pennsylvania - Accounting Department

Jennifer L. Blouin

University of Pennsylvania - Accounting Department

David F. Larcker

Stanford University - Graduate School of Business

Date Written: March 8, 2011

Abstract

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

Armstrong, Chris and Blouin, Jennifer L. and Larcker, David F., The Incentives for Tax Planning (March 8, 2011). Rock Center for Corporate Governance at Stanford University Working Paper No. 56; Journal of Accounting and Economics, Volume 53, Issues 1–2, (Feb–April 2012): 391-411. ; Rock Center for Corporate Governance at Stanford University Working Paper No. 56; Stanford Graduate School of Business Research Paper No. 2032. Available at SSRN: https://ssrn.com/abstract=1416422

Chris S. Armstrong

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)

David F. Larcker (Contact Author)

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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