CEO political preference and corporate tax sheltering

Bill B. Francis, Iftekhar Hasan, Xian Sun, Qiang Wu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

27 Citations (Scopus)

Abstract

We show that firms led by politically partisan CEOs are associated with a higher level of corporate tax sheltering than firms led by nonpartisan CEOs. Specifically, Republican CEOs are associated with more corporate tax sheltering even when their wealth is not tied with that of shareholders and when corporate governance is weak, suggesting that their tax sheltering decisions could be driven by idiosyncratic factors such as their political ideology. We also show that Democratic CEOs are associated with more corporate tax sheltering only when their stock-based incentives are high, suggesting that their tax sheltering decisions are more likely to be driven by economic incentives. In sum, our results support the political connection hypothesis in general but highlight that the specific factors driving partisan CEOs' tax sheltering behaviors differ. Our results imply that it may cost firms more to motivate Democratic CEOs to engage in more tax sheltering activities because such decisions go against their political beliefs regarding tax policies.

Original languageEnglish
Pages (from-to)37-53
Number of pages17
JournalJournal of Corporate Finance
Volume38
DOIs
Publication statusPublished - 1 Jun 2016
Externally publishedYes

Keywords

  • CEO
  • Democrats
  • G21
  • G32
  • H26
  • Incentives
  • P16
  • Political preference
  • Republicans
  • Tax sheltering

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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