The Burden of Attention: The Impact of CEO Publicity on Tax Avoidance

Abstract

We use Google search volume index for a CEO’s name and stock ticker to measure CEO publicity, and examine the competing hypotheses on its effect on the tax behavior: On the one hand, CEOs who receive higher attention from the retail investors are motivated to engage in tax avoidance activities to inflate earning to meet investors’ performance expectation; on the other hand, they concern more about public image and therefore avoid to be labeled as tax avoiders. Based on the analysis of the CEOs of S&P500 firms between 2004 and 2011, the finding supports the former and shows that the CEOs with higher publicity manage to enjoy lower effective tax rate and cash effective tax rate. In addition, such effect is moderated by board independence. Finally, we find that firms with higher CEO publicity pay auditors more tax fees, suggesting that these CEOs tend to purchase more tax planning service from external auditors. Our findings are robust to alternative measures of tax avoidance, and have important implications on both tax authority and investors.

Keywords: CEO publicity; Google search; tax avoidance; CEO

JEL Classification: K3, L5, H3, H30