CEOs' Internal Connections and Corporate Tax Avoidance

We find that more social connections between a CEO and other top executives in the same firm are associated with more tax avoidance by the firm. This effect holds when several alternative measures of corporate tax avoidance are used. The finding also persists after controlling for potential endogenous effects. The impact of a CEO's internal connections on corporate tax avoidance is more pronounced when the firm operates in a more uncertain environment, when the CEO has a shorter tenure, and when the CEO's wealth is less sensitive to changes in the firm's stock price. Furthermore, we find that corporate tax avoidance induced by CEOs' internal connections generally reduces firm value. Overall, our findings suggest that CEOs' internal connections facilitate collaboration on tax planning within the management team, but the facilitated tax planning primarily harms shareholders' interests.