How Does CEO Tenure Affect Corporate Income Tax Planning and Financial Reporting Decisions?

42 Pages Posted: 19 May 2017 Last revised: 12 Dec 2017

See all articles by Nathan C. Goldman

Nathan C. Goldman

North Carolina State University - Department of Accounting

Kathleen Schuchard

University of Tennessee, Knoxville

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Date Written: December 11, 2017

Abstract

This study examines whether corporate tax planning and financial reporting of income taxes vary systematically with CEO tenure. Using a CEO-firm fixed effects design, we find that the GAAP effective tax rate (ETR) is higher in the early years of the CEOs’ tenure and lowest in the last year of the CEOs’ tenure. In contrast, we find no difference in the cash ETR over the CEO’s tenure. These results suggest that the financial reporting of income taxes exhibits more variation over the CEO’s tenure than the underlying corporate tax planning and are consistent with managers being cautious in the financial reporting of income taxes early in their tenure. Further analysis shows that CEOs achieve these financial reporting outcomes in part by designating earnings as permanently reinvested and by using discretion in the reserve for uncertain tax benefits. These findings should be of interest to compensation committees and boards of directors, responsible for incentivizing and evaluating CEOs.

Suggested Citation

Goldman, Nathan C. and Schuchard, Kathleen and Williams, Brian, How Does CEO Tenure Affect Corporate Income Tax Planning and Financial Reporting Decisions? (December 11, 2017). Available at SSRN: https://ssrn.com/abstract=2969662 or http://dx.doi.org/10.2139/ssrn.2969662

Nathan C. Goldman

North Carolina State University - Department of Accounting ( email )

Raleigh, NC 27695-8113
United States

Kathleen Schuchard

University of Tennessee, Knoxville ( email )

916 Volunteer Blvd
Knoxville, TN 37916
United States
8659741756 (Phone)

Brian Williams (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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