Incentives for Tax Planning and Avoidance: Evidence from the Field

48 Pages Posted: 19 Sep 2012 Last revised: 17 May 2014

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Terry J. Shevlin

University of California-Irvine

Nemit Shroff

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: November 11, 2013

Abstract

We analyze survey responses from nearly 600 corporate tax executives to investigate firms’ incentives and disincentives for tax planning. While many researchers hypothesize that reputational concerns affect the degree to which managers engage in tax planning, this hypothesis is difficult to test with archival data. Our survey allows us to investigate reputational influences and indeed we find that reputational concerns are important – 69% of executives rate reputation as important and the factor ranks second in order of importance among all factors explaining why firms do not adopt a potential tax planning strategy. We also find that financial accounting incentives play a role. For example, 84% of publicly traded firms respond that top management at their company cares at least as much about the GAAP ETR as they do about cash taxes paid and 57% of public firms say that increasing earnings per share is an important outcome from a tax planning strategy. Finally, we examine whether FIN 48 and SOX affected tax planning and relationships with auditors, as conjectured in prior research. Executive responses confirm these conjectures.

Keywords: Tax Planning, Tax Avoidance, Reputation, Financial Reporting Incentives, FIN 48, SOX

JEL Classification: G30, H26, M41

Suggested Citation

Graham, John R. and Hanlon, Michelle and Shevlin, Terry J. and Shroff, Nemit, Incentives for Tax Planning and Avoidance: Evidence from the Field (November 11, 2013). The Accounting Review, Vol. 89, No. 3, pp. 991-1023, May 2014; MIT Sloan Research Paper No. 4990-12. Available at SSRN: https://ssrn.com/abstract=2148407 or http://dx.doi.org/10.2139/ssrn.2148407

John Robert Graham

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-668
Cambridge, MA 02142
United States
617-253-9849 (Phone)

Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States
949-824-6149 (Phone)

Nemit Shroff (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main St.
E62-679
Cambridge, MA MA 02142
United States
6173240805 (Phone)

HOME PAGE: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=51407&co_list=F

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