Managerial Career Concerns and Corporate Tax Avoidance: Evidence from the Inevitable Disclosure Doctrine

53 Pages Posted: 17 Nov 2018

See all articles by Ningzhong Li

Ningzhong Li

University of Texas at Dallas

Terry J. Shevlin

University of California-Irvine; University of California-Irvine

Weining Zhang

Cheung Kong Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 25, 2018

Abstract

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

Li, Ningzhong and Shevlin, Terry J. and Shevlin, Terry J. and Zhang, Weining, Managerial Career Concerns and Corporate Tax Avoidance: Evidence from the Inevitable Disclosure Doctrine (October 25, 2018). Available at SSRN: https://ssrn.com/abstract=3273200 or http://dx.doi.org/10.2139/ssrn.3273200

Ningzhong Li (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States
949-824-6149 (Phone)

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
2065509891 (Phone)

Weining Zhang

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

HOME PAGE: http://english.ckgsb.edu.cn/FacultyResearch/Faculty/Accounting/ZhangWeining.aspx

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