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Overconfidence and Corporate Tax Policy

Author

Listed:
  • James A. Chyz

    (University of Tennessee)

  • Fabio B. Gaertner

    (University of Wisconsin-Madison)

  • Asad Kausar

    (American University)

  • Luke Watson

    (Drexel University)

Abstract

Using a sample of firms experiencing exogenous CEO departures, we investigate whether firms with overconfident CEOs avoid more tax. We find robust evidence of a positive relation between proxies for corporate tax avoidance and CEO overconfidence. Because our empirical tests use a panel of firm-years with exogenous CEO departures and include controls for stationary firm effects as well as observable firm characteristics, we can better isolate the role of an idiosyncratic personality trait (i.e., overconfidence) on corporate tax outcomes, thus adding to the literatures on overconfidence, managerial effects, and tax avoidance.

Suggested Citation

  • James A. Chyz & Fabio B. Gaertner & Asad Kausar & Luke Watson, 2019. "Overconfidence and Corporate Tax Policy," Review of Accounting Studies, Springer, vol. 24(3), pages 1114-1145, September.
    • Handle: RePEc:spr:reaccs:v:24:y:2019:i:3:d:10.1007_s11142-019-09494-z
    DOI: 10.1007/s11142-019-09494-z
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    Cited by:

    1. Katarzyna Anna Bilicka & Elisa Casi & Carol Seregni & Barbara Stage, 2021. "Tax Strategy Disclosure: A Greenwashing Mandate?," CESifo Working Paper Series 9030, CESifo.
    2. Lu, Jing & Ho, Keng-Yu & Ho, Po-Hsin & Ko, Kuan-Cheng, 2023. "CEO overconfidence, lottery preference and the cross-section of stock returns," Finance Research Letters, Elsevier, vol. 54(C).
    3. Bassem Salhi, 2021. "RETRACTED: The Relationship between CEO Psychological Biases, Corporate Governance and Corporate Social Responsibility," JRFM, MDPI, vol. 14(7), pages 1-19, July.
    4. Lartey, Theophilus & Uddin, Moshfique & Danso, Albert & Wood, Geoffrey, 2022. "CEO overconfidence and IRS attention," Journal of Financial Stability, Elsevier, vol. 61(C).
    5. Baghdadi, Ghasan & Podolski, Edward J. & Veeraraghavan, Madhu, 2022. "CEO risk-seeking and corporate tax avoidance: Evidence from pilot CEOs," Journal of Corporate Finance, Elsevier, vol. 76(C).
    6. Giese, Henning & Koch, Reinald & Gamm, Markus, 2022. "Tax avoidance and vertical interlocks within multinational enterprises," arqus Discussion Papers in Quantitative Tax Research 270, arqus - Arbeitskreis Quantitative Steuerlehre.
    7. Byzalov, Dmitri & Basu, Sudipta, 2024. "The misuse of regression-based x-Scores as dependent variables," Journal of Accounting and Economics, Elsevier, vol. 77(2).
    8. Caleb Rawson, 2022. "Manager perception and proprietary investment disclosure," Review of Accounting Studies, Springer, vol. 27(4), pages 1493-1525, December.
    9. Müller, Raphael & Spengel, Christoph & Weck, Stefan, 2021. "How do investors value the publication of tax information? Evidence from the European public country-by-country reporting," ZEW Discussion Papers 21-077, ZEW - Leibniz Centre for European Economic Research.
    10. Xiang, Junyi & Zhu, Ling & Kong, Dongmin, 2023. "Labor cost and corporate tax avoidance," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 338-358.
    11. Lu Qiao & Emmanuel Adegbite & Tam Huy Nguyen, 2024. "CFO overconfidence and conditional accounting conservatism," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 1-37, January.
    12. Devista Yoga Prasetyo & Priyo Hari Adi & Theresia Woro Damayanti, 2020. "Overconfidence, Gender and Tax Compliance - the Indonesian Evidence," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 16(4), pages 135-143.
    13. Theophilus Lartey & Albert Danso, 2022. "CEO overconfidence and debt covenant violations," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(1), pages 162-199, March.
    14. Wu, Qingyang, 2024. "Power play in carbon trading market: How status of executives with R&D background incentives companies’ low-carbon innovation," Energy Policy, Elsevier, vol. 188(C).
    15. Killins, Robert & Ngo, Thanh & Wang, Hongxia, 2021. "Goodwill impairment and CEO overconfidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    16. Lai, Shaojie & Liu, Shiang & Wang, Qing Sophie, 2023. "Déjà Vu: CEO overconfidence and bank mortgage lending in the post-financial crisis period," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    17. Chen, Jie & Mishra, Tapas & Song, Wei & Zhang, Qingjing & Zhang, Zhuang, 2024. "The impact of bank mergers on corporate tax aggressiveness," Journal of Corporate Finance, Elsevier, vol. 84(C).
    18. Yi-Hsing Liao & Teng-Sheng Sang & Yuan-Tang Tsai, 2022. "Do information sources matter in corporate tax avoidance? The roles of peer effects and director interlocks," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 339-382, July.
    19. Christofer Adrian & Mukesh Garg & Anh Viet Pham & Soon-Yeow Phang & Cameron Truong, 2023. "Do Natural Disasters Affect Corporate Tax Avoidance? The Case of Drought," Journal of Business Ethics, Springer, vol. 186(1), pages 105-135, August.

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    More about this item

    Keywords

    Overconfidence; Tax avoidance; Manager effects;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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