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The Incentives for Tax Planning

Author

Listed:
  • Armstrong, Christopher S.

    (University of Pennsylvania)

  • Blouin, Jennifer L.

    (University of Pennsylvania)

  • Larcker, David F.

    (Stanford University)

Abstract

Recent research argues that differences in the structure of top executive compensation plans and/or corporate culture explain cross-sectional variation in tax avoidance. However, this research does not link tax planning to the incentives of the specific executive managing the tax function in the firm. We use a proprietary data set with detailed executive compensation to examine the relation between the incentives of the tax director and the book-tax gap, financial and cash effective tax rates, and measures of tax aggressiveness. We find that the incentives of the tax director exhibit a strong negative relation with the financial effective tax rate, but little relation with the other tax attributes. We interpret these results as indicating that tax directors are provided with incentives to generate a favorable impact to the financial statements.

Suggested Citation

  • Armstrong, Christopher S. & Blouin, Jennifer L. & Larcker, David F., 2009. "The Incentives for Tax Planning," Research Papers 2032, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:2032
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    File URL: http://gsbapps.stanford.edu/researchpapers/library/RP2032.pdf
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    Cited by:

    1. Armstrong, Christopher S. & Blouin, Jennifer L. & Jagolinzer, Alan D. & Larcker, David F., 2015. "Corporate Governance, Incentives, and Tax Avoidance," Research Papers 2134, Stanford University, Graduate School of Business.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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