Corporate Culture and Tax Planning

54 Pages Posted: 26 Aug 2022

See all articles by Mansoor Afzali

Mansoor Afzali

Hanken School of Economics

Timmy Thor

Hanken School of Economics

Date Written: August 19, 2022

Abstract

We study the effects of corporate culture on tax planning. Using the competing value framework and natural language processing techniques, we quantify internally oriented corporate cultural dimensions of control and collaboration. We predict that these dimensions influence intraorganizational knowledge flows in different ways that ultimately affect corporate tax planning. Hierarchical control cultures foster bureaucracy that negatively impacts intraorganizational knowledge flows and results in less optimal tax planning. In contrast, collaboration-oriented cultures embrace flat hierarchies that positively influence intraorganizational knowledge flows that result in more efficient tax planning. Our empirical findings are consistent with these predictions: firms with control-oriented (collaboration-oriented) cultures have higher (lower) GAAP and cash effective tax rates. We find some evidence that collaboration-oriented cultures achieve these corporate tax savings by engaging in aggressive tax shelters and that such tax savings enhance firm value.

Keywords: Corporate culture, competing value framework, text analysis, tax planning, tax sheltering, firm value

JEL Classification: H26, M14, M41

Suggested Citation

Afzali, Mansoor and Thor, Timmy, Corporate Culture and Tax Planning (August 19, 2022). Available at SSRN: https://ssrn.com/abstract=4194847 or http://dx.doi.org/10.2139/ssrn.4194847

Mansoor Afzali (Contact Author)

Hanken School of Economics ( email )

FI-00101 Helsinki
Finland

Timmy Thor

Hanken School of Economics ( email )

FI-00101 Helsinki
Finland

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