Directors’ and Officers’ Liability Insurance and Tax Aggressiveness

25 Pages Posted: 22 Nov 2014

See all articles by Tao Zeng

Tao Zeng

Wilfrid Laurier University - Lazaridis School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 20, 2014

Abstract

This paper examines the relationship between directors' and officers’ liability insurance (D&O insurance) and tax aggressiveness. Using large Canadian public companies listed on TSX300 and relying on several proxies for tax aggressiveness including GAAP and cash effective tax rates and the book-tax difference, I find that D&O insurance exhibits a strong negative relationship with the GAAP effective tax rates and a relatively moderate positive relationship with the book-tax difference, but there is no evidence that the D&O insurance is associated with the cash effective tax rates. I interpret these results as indicating that D&O insurance reduces the tax expenses reported in the financial statements but not the actual tax paid. In other words, the D&O liability insurance contributes to financial tax management but not to cash tax savings.

Keywords: directors' and officers’ liability insurance (D&O insurance), tax aggressiveness, GAAP and cash effective tax rates, book-tax difference

JEL Classification: M4

Suggested Citation

Zeng, Tao, Directors’ and Officers’ Liability Insurance and Tax Aggressiveness (November 20, 2014). Available at SSRN: https://ssrn.com/abstract=2528591 or http://dx.doi.org/10.2139/ssrn.2528591

Tao Zeng (Contact Author)

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

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Waterloo, Ontario N2L 3C5
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