CFO Work Experience and Tax Avoidance: Evidence from China

Abstract

We ask whether the general managerial skills that Chief Financial Officers (CFOs) gain from lifetime work experience affect corporate tax avoidance. We use a sample of hand-collected data for Chinese-listed companies to develop and validate a new CFO managerial skills index based on four dimensions of CFO work experience: (1) the number of current positions a CFO holds, (2) the number of functional departments a CFO has worked in, (3) the number of firms the CFO has worked for, and (4) whether the CFO has political connections. This index, including a subcomponent for political connections, is particularly appropriate when studying emerging economies that tend to be “relationship-based” rather than “market-based.” We find that CFOs with high general managerial skills are more likely to engage in aggressive tax avoidance. This effect is weaker among CFOs who are approaching retirement, are in their first year of employment, or are too busy. Our findings are robust to the inclusion of a comprehensive list of relevant control variables, tackling endogeneity concerns, and to a battery of other sensitivity tests.

Keywords: Chief Financial Officer (CFO), work experience, managerial skills, tax avoidance

JEL Classification: G30, H26, J24, M41