Do Corporate Governance Characteristics Influence Tax Management?

Posted: 27 May 2011

Date Written: December 24, 2010

Abstract

This paper investigates how corporate governance plays a role in long-run tax management and contributes to the existing literature in several ways. First, we add insight into the horizon problems related to executive and director compensation and show that incentive compensation provides long-term incentives to improve performance by establishing a link between higher pay-performance sensitivity and lower taxes. Second, this is one of the first papers, to our knowledge, to empirically examine the role of governance in corporate tax management from a long-term perspective in order to better understand the lasting effects of governance. We find that incentive compensation drives managers to make investments into longer-horizon pay outs such as tax management. Furthermore, we find that this investment into tax management benefits shareholders; better tax management is positively related to higher returns to shareholders. We also address the endogeneity issues of corporate governance and performance measures. Finally, our paper is unique in examining which type of tax management strategy (domestic or foreign) different firms focus on. Our results shed light into how governance can improve firm performance and increase shareholder value in the long run.

Keywords: Corporate Governance, Tax Management

JEL Classification: G31, G34

Suggested Citation

Minnick, Kristina and Noga, Tracy, Do Corporate Governance Characteristics Influence Tax Management? (December 24, 2010). Journal of Corporate Finance, Vol. 16, No. 5, pp. 703-718, 2010, Available at SSRN: https://ssrn.com/abstract=1851804

Kristina Minnick (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

HOME PAGE: http://sites.google.com/view/kminnick/home

Tracy Noga

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
2,715
PlumX Metrics