CEO Political Preference and Corporate Tax Sheltering

57 Pages Posted: 11 Apr 2016

See all articles by Bill B. Francis

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Xian Sun

Johns Hopkins University - Carey Business School

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Date Written: 2016

Abstract

​We show that firms led by politically partisan CEOs are associated with a higher level of corporate tax sheltering than firms led by nonpartisan CEOs. Specifically, Republican CEOs are associated with more corporate tax sheltering even when their wealth is not tied with that of shareholders and when corporate governance is weak, suggesting that their tax sheltering decisions could be driven by idiosyncratic factors such as their political ideology. We also show that Democratic CEOs are associated with more corporate tax sheltering only when their stock-based incentives are high, suggesting that their tax sheltering decisions are more likely to be driven by economic incentives. In sum, our results support the political connection hypothesis in general but highlight that the specific factors driving partisan CEOs’ tax sheltering behaviors differ. Our results imply that it may cost firms more to motivate Democratic CEOs to engage in more tax sheltering activities because such decisions go against their political beliefs regarding tax policies.

Keywords: G21, H26, G32, P16, political preference, tax sheltering, CEO, Democrats, Republicans, incentives

Suggested Citation

Francis, Bill B. and Hasan, Iftekhar and Sun, Xian and Wu, Qiang, CEO Political Preference and Corporate Tax Sheltering (2016). Bank of Finland Research Discussion Paper No. 5/2016. Available at SSRN: https://ssrn.com/abstract=2762223

Bill B. Francis (Contact Author)

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

Troy, NY 12180
United States

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Xian Sun

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

110 8th St
Troy, NY 12180
United States
518-276-3338 (Phone)
518-276-8661 (Fax)

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