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Overconfidence and Corporate Tax Policy

  • James A. Chyz
  • Fabio B. Gaertner
  • Asad Kausar
  • Luke WatsonEmail author
Article
  • 32 Downloads

Abstract

Using a sample of firms experiencing exogenous CEO departures, we investigate whether firms with overconfident CEOs avoid more tax. We find robust evidence of a positive relation between proxies for corporate tax avoidance and CEO overconfidence. Because our empirical tests use a panel of firm-years with exogenous CEO departures and include controls for stationary firm effects as well as observable firm characteristics, we can better isolate the role of an idiosyncratic personality trait (i.e., overconfidence) on corporate tax outcomes, thus adding to the literatures on overconfidence, managerial effects, and tax avoidance.

Keywords

Overconfidence Tax avoidance Manager effects 

JEL classification

D80 M40 H25 

Notes

Acknowledgements

We thank Edward Fee, Charles Hadlock, and Joshua Pierce for allowing us to use their exogenous CEO departure data. We are thankful for helpful comments from two anonymous reviewers, Brad Blaylock, Scott Dyreng, Paul Fischer (editor), Sandy Klasa, April Klein, Alok Kumar, Clive Lennox, Ed Maydew, Brian Mayhew, Lil Mills, Mark Peecher, Leslie Robinson, Terry Shevlin, Richard Taffler, members of the University of Connecticut Tax Reading Group, members of the University of Texas Tax Reading Group, workshop participants at the University of Kentucky, and attendees at the 2014 NTA Annual Meeting, 2014 Accounting Conference at Temple University, and 2014 Behavioral Finance Working Group Conference (University of London). A prior version of this paper benefited from useful comments from Dan Givoly, Michelle Hanlon, Rick Laux, and Karl Muller. We are thankful for the financial support from the University of Tennessee (Chyz); University of Wisconsin-Madison (Gaertner); American University (Kausar); Luciano Prida Sr. Term Professorship, Fisher School of Accounting, and Warrington College of Business (Watson).

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.University of TennesseeKnoxvilleUSA
  2. 2.University of Wisconsin-MadisonMadisonUSA
  3. 3.American UniversityWashingtonUSA
  4. 4.Drexel UniversityPhiladelphiaUSA

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