Managerial ability and tax aggressiveness

Bill Francis, Xian Sun, Chia-Hsiang Weng, Qiang Wu

Research output: Journal article publicationJournal articleAcademic researchpeer-review


Purpose– The aim of this paper is to examine how managerial ability affects corporate tax aggressiveness.
Design/methodology/approach– The study follows the work of Demerjian, Lev, and McVay (2012) and quantifies managerial ability by calculating how efficiently managers generate revenues from given economic resources using the data envelopment analysis (DEA) approach. The study uses a wide range of measures of tax aggressiveness. Firm fixed-effects regressions and a difference-in-differences approach using information regarding CEO turnover to control for endogeneity are used.
Findings– The study finds a negative relationship between managerial ability and corporate tax aggressiveness. Further tests show that this negative relationship is more pronounced for firms with higher investment opportunities or firms with more reputational concerns.
Originality/value– Given the significant costs associated with tax aggressiveness and the negative effect it can haveonmanagerialreputation ifdiscovered, the results suggestthat more ablemanagersinvest lesseffort in aggressive tax avoidance activities. This study furthers the understanding of how managerial personal traits affect corporate decision-making.
Original languageEnglish
Pages (from-to)53-75
JournalChina accounting and finance review (中國會計與財務硏究)
Issue number1
Publication statusPublished - Apr 2022


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