Managerial Career Concerns and Corporate Tax Avoidance: Evidence from the Inevitable Disclosure Doctrine
53 Pages Posted: 17 Nov 2018
Date Written: October 25, 2018
This study examines the effect of managers’ career concerns on tax avoidance using the staggered recognition by state courts of the Inevitable Disclosure Doctrine (IDD), a trade secret protection doctrine which places greater restrictions on managers from joining or forming a rival company. We argue that the IDD recognition increases the cost of job loss for managers whose current jobs are in jeopardy thereby increasing their incentives to avoid taxes, improve performance, and favorably influence the current employer’s assessment of their ability. The IDD recognition also reduces opportunities for managers who have better outside jobs, and thereby reduces their incentives to save taxes, improve performance, and favorably influence the external employers’ assessment of their ability. Using a difference-in-differences design, we provide evidence consistent with these predictions. We further show these effects are stronger for CEOs in their early years of service, when the market is more uncertain about their ability.
Keywords: Managers’ outside employment opportunities, Career concerns, Inevitable Disclosure Doctrine, Tax avoidance
JEL Classification: H26, M41
Suggested Citation: Suggested Citation