The Role of Managerial Ability in Corporate Tax Avoidance

59 Pages Posted: 23 Mar 2016

See all articles by Allison Koester

Allison Koester

Georgetown University

Terry J. Shevlin

University of California-Irvine

Daniel Wangerin

Wisconsin School of Business

Date Written: March 21, 2016


Most prior studies model tax avoidance as a function of firm-level characteristics and do not consider how individual executive characteristics affect tax avoidance. This paper investigates whether executives with superior ability to efficiently manage corporate resources engage in greater tax avoidance. Our results show that moving from the lower to upper quartile of managerial ability is associated with a 3.15 (2.50) percent reduction in a firm’s one-year (five-year) cash effective tax rate (ETR). We examine how higher ability managers reduce income tax payments and find they engage in greater state tax planning activities, shift more income to foreign tax havens, make more R&D credit claims, and make greater investments in assets that generate accelerated depreciation deductions. Identifying a manager characteristic related to firms’ tax policy decisions adds to our understanding of the factors that explain the substantial variation in corporate income tax payments across firms.

Keywords: tax avoidance, management style, managerial ability

JEL Classification: G30, M41

Suggested Citation

Koester, Allison and Shevlin, Terry J. and Wangerin, Daniel D., The Role of Managerial Ability in Corporate Tax Avoidance (March 21, 2016). Management Science, Forthcoming, Georgetown McDonough School of Business Research Paper No. 2753152, Available at SSRN:

Allison Koester (Contact Author)

Georgetown University ( email )

McDonough School of Business
Washington, DC 20057
United States
202.687.6461 (Phone)


Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
2065509891 (Phone)

Daniel D. Wangerin

Wisconsin School of Business ( email )

975 University Avenue
4104 Grainger Hall
Madison, WI 53706
United States

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