Corporate Governance, Incentives, and Tax Avoidance

By Christopher S. Armstrong, Jennifer Blouin, Alan D. Jagolinzer, David F. Larcker. 2015

1,058 citations recorded by the source corpus.

We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over- and under-investment by managers.

Subfields: Accounting

View Paper: https://www.semanticscholar.org/paper/a020c2fe46abee924c42554c956cbae265ceae4a

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Citations in the corpus

• Comparing UK Tax Returns of Foreign Multinationals to Matched Domestic Firms (2019, neutral): “The accounting literature identifies a relationship between firm’s CEO who may be an aggressive tax planner and the amount of accounting profits that a firm reports (Armstrong et al. (2012), Armstrong et al. (2015)). (21)This branch of the literature considers what is called a book-tax gap. See earl”
• The effect of corporate tax avoidance on the cost of equity (2013, result): “To the extent that outside monitoring mitigates underinvestment in tax avoidance, we expect investors to view tax avoidance more positively for firms with better outside monitoring, consistent with the alternative agency-theoretic view proposed by Armstrong et al. (2015).”
• Governance and Taxes: Evidence from Regression Discontinuity (2016, positive): “Relative to both Armstrong et al. (2015) and Cheng et al. (2012), our setting of Russell index reconstitutions better isolates the causal effect of institutional ownership on corporate tax policy by eliminating the possibility of reverse causality (i.”
• Customer-Supplier Relationships and Corporate Tax Avoidance (2017, background): “Armstrong et al. (2012) find that the incentive compensation of the tax director is negatively related to GAAP ETR but not CASH ETR. Rego and Wilson (2012) show that CEO equity risk incentives are positively related to aggressive or risky tax planning.”
• Tax avoidance, corporate governance, and corporate social responsibility: The case of the Egyptian capital market (2020, background): “However, tax avoidance could be viewed as a value-maximizing activity by businesses (Kim et al., 2011; Armstrong et al. 2015).”
• The Role of Bank Monitoring in Borrowers’ Discretionary Disclosure: Evidence from Covenant Violations (2014, neutral): “1 See Bushman and Smith (2001, 2003) and Armstrong et al. (2010) for comprehensive surveys of this work.”
• Corporate tax avoidance: data truncation and loss firms (2018, positive): “Whether the measure is a single- or multi-year ETR measure or an ETR Bdifferential^ as examined in Armstrong et al. (2015), negative pre-tax income or tax expense results in measures of tax avoidance that lack a convenient economic interpretation.”