The Impact of Managerial Mood on Public Firms’ Decisions: Evidence from Corporate Tax Avoidance

56 Pages Posted: 10 Nov 2017 Last revised: 13 Dec 2019

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy

Rui Ge

Shenzhen University - Shenzhen Audencia Business School

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Leon Zolotoy

University of Melbourne - Melbourne Business School

Date Written: December 13, 2019

Abstract

We examine the impact of managerial mood on corporate tax avoidance—a ubiquitous corporate decision. Using variation in local sunshine as exogenous shocks to managerial mood, we report strong, robust evidence that negative mood induced by cloudy weather leads firms to undertake more aggressive tax positions. Reinforcing the intuition underlying our main result, we find that negative weather-induced mood is positively associated with managers’ subjective perceptions of firms’ financial constraints, but not with their actual financial constraints. In the cross-sectional analysis, we find that the importance of weather-induced mood to tax avoidance subsides when the board has more financial expertise and the tax audit threat is greater—i.e., in situations when managers are held more accountable for their tax planning decisions. Taken together, our findings cast weather-induced managerial mood as a salient contextual factor shaping corporate tax avoidance decisions.

Keywords: Weather; Managerial Mood; Tax Avoidance

JEL Classification: G02; G30

Suggested Citation

Chen, Yangyang and Ge, Rui and Pittman, Jeffrey A. and Veeraraghavan, Madhu and Zolotoy, Leon, The Impact of Managerial Mood on Public Firms’ Decisions: Evidence from Corporate Tax Avoidance (December 13, 2019). Available at SSRN: https://ssrn.com/abstract=3067343 or http://dx.doi.org/10.2139/ssrn.3067343

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Rui Ge

Shenzhen University - Shenzhen Audencia Business School ( email )

Shenzhen
China

Jeffrey A. Pittman (Contact Author)

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

Leon Zolotoy

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

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