48 Pages Posted: 19 Sep 2012 Last revised: 17 May 2014
Date Written: November 11, 2013
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: 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