Managers’ Personal Political Orientation and Corporate Tax Avoidance

Posted: 30 Dec 2011 Last revised: 29 Aug 2012

See all articles by Dane M. Christensen

Dane M. Christensen

University of Oregon

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Steven Boivie

Texas A&M University - Department of Management

Scott D. Graffin

University of Georgia - Department of Management

Date Written: June 30, 2012

Abstract

This study investigates whether managers’ personal political orientation helps explain tax avoidance at the firms they manage. Results reveal the intriguing finding that, on average, firms with top executives who lean toward the Republican Party actually engage in less tax avoidance than firms whose executives lean toward the Democratic Party. These findings are consistent with the argument that Republican managers’ preference for lower taxes is dominated by their desire to be conservative. Thus, the conservative tone at the top they set leads the firm to engage in less tax avoidance than firms that are run by Democrat managers. Additionally, we find that this effect appears to be driven by the subset of managers who are entrenched, which is consistent with managers having more freedom to imprint their personal preferences on firms with weaker governance. We also examine changes in tax avoidance around CEO turnovers and find corroborating evidence.

Keywords: tax avoidance, effective tax rate, politics

JEL Classification: H25, M41, G30

Suggested Citation

Christensen, Dane M. and Dhaliwal, Dan S. and Boivie, Steven and Graffin, Scott D., Managers’ Personal Political Orientation and Corporate Tax Avoidance (June 30, 2012). Available at SSRN: https://ssrn.com/abstract=1977638 or http://dx.doi.org/10.2139/ssrn.1977638

Dane M. Christensen (Contact Author)

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Steven Boivie

Texas A&M University - Department of Management ( email )

430 Wehner
College Station, TX 77843-4218
United States

Scott D. Graffin

University of Georgia - Department of Management ( email )

United States

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