The Incentives for Tax Planning

By Christopher S. Armstrong, Jennifer Blouin, David F. Larcker. 2012

883 citations recorded by the source corpus.

We use a proprietary data set with detailed executive compensation information to examine the relationship between the incentives of the tax director and GAAP and cash effective tax rates, the book-tax gap, and measures of tax aggressiveness. We find that the incentive compensation of the tax director exhibits a strong negative relationship with the GAAP effective tax rate, but little relationship with the other tax attributes. We interpret these results as indicating that tax directors are provided with incentives to reduce the level of tax expense reported in the financial statements.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/e4b15e778ebab8e4fca9efc2b59c81c4aecf9a9b

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Citations in the corpus

Do Analysts Understand the Economic and Reporting Complexities of Derivatives (2016, neutral): “Although no strict benchmarks exist for gauging sensitivity (Armstrong et al. 2012), by comparison, if control firms were matched only by industry the results would be sensitive to a bias that less than doubled the odds of derivatives initiation.”
Directors with foreign experience and corporate tax avoidance (2020, background): “Armstrong et al. (2012) find a positive relationship between the incentive compensation of tax directors and their firms' tax avoidance. Robinson et al. (2012) show that directors with financial expertise can promote reasonable tax planning efficiency but reduce the aggressiveness of tax avoidance. ”
The Role of Managerial Ability in Corporate Tax Avoidance (2017, neutral): “Prior research also shows that executive compensation incentives influence corporate tax avoidance policies (e.g., Rego and Wilson 2012, Armstrong et al. 2012, Gaertner 2014).”
Customer-Supplier Relationships and Corporate Tax Avoidance (2017, background): “…the managershareholder relationship by examining the effects of managerial compensation contracts, ownership structure, and corporate governance on tax avoidance (e.g., Armstrong, Blouin, and Larcker, 2012, 2013; Chen et al., 2010; Desai and Dharmapala, 2006; Phillips 2003; Rego and Wilson, 2012).”
Incentives for Tax Planning and Avoidance: Evidence from the Field (2014, methodology): “We also ask questions to directly address the hypotheses put forth in Robinson et al. (2010), Armstrong et al. (2012) and Desai and Dharmapala (2006, 2009a, b).”
The effect of corporate tax avoidance on the cost of equity (2013, background): “Our findings also potentially explain why many large U.S. corporations engage in tax planning and why corporations provide incentives for managers to engage in tax planning (Robinson et al. 2010; Armstrong et al. 2012).”
A review of tax research (2010, neutral): “65 See Armstrong et al. (2010) for a discussion of corporate governance.”
Societal trust and corporate tax avoidance (2018, neutral): “Armstrong et al. (2012) find that U.S. tax managers are more focused on reducing the effective tax rate reported in the financial statements but not the actual cash tax savings, so we examine whether societal trust differentially affects the incentives to reduce effective tax rate and cash tax paid.”
DEFINING AND MEASURING TAX PLANNING AGGRESSIVENESS (2014, background): “Armstrong, Blouin, and Larcker (2012) document that tax directors’ compensation is correlated with the GAAP ETR rather than the cash ETR.”