Offshore Expertise for Onshore Companies: Director Connections to Island Tax Havens and Corporate Tax Policy

Management Science, Forthcoming

48 Pages Posted: 6 Feb 2017 Last revised: 24 Jun 2017

See all articles by Chao Jiang

Chao Jiang

University of South Carolina - Department of Finance

Thomas R. Kubick

University of Nebraska-Lincoln

Mihail K. Miletkov

University of New Hampshire - Paul College of Business and Economics

M. Babajide Wintoki

University of Kansas - School of Business

Date Written: February 5, 2017

Abstract

Theory and recent empirical literature suggest that social and professional connections may influence corporate policy. However, inference may be biased by the possibility that firms who share peers also share unobserved characteristics that are correlated with observed policy. Using a novel identification strategy, we predict and find that director connections through well-known island tax havens have a significant effect on corporate tax policy. Specifically, we find that U.S. firms with directors who are connected to firms domiciled on the islands of the Bahamas, Bermuda, or the Caymans, exhibit significantly greater tax avoidance than other U.S. firms. The presence or arrival of an island director is associated with a reduction of between one and three percentage points in the firm's effective tax rate. We also observe a significant increase in the use of tax haven subsidiaries following the arrival of the island director.

Keywords: Tax avoidance, Tax aggressiveness, Social networks, Director interlocks

JEL Classification: H26, K34, M40, M49

Suggested Citation

Jiang, Chao and Kubick, Thomas R. and Miletkov, Mihail K. and Wintoki, Modupe Babajide, Offshore Expertise for Onshore Companies: Director Connections to Island Tax Havens and Corporate Tax Policy (February 5, 2017). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2912051 or http://dx.doi.org/10.2139/ssrn.2912051

Chao Jiang

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

Thomas R. Kubick

University of Nebraska-Lincoln ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Mihail K. Miletkov

University of New Hampshire - Paul College of Business and Economics ( email )

10 Garrison Ave
Durham, NH 03824
United States

Modupe Babajide Wintoki (Contact Author)

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

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