The Effect Of Executives On Tax Avoidance Of Listed Companies

Numerous literatures have been published related to the topic of tax avoidancefor decades. Also the topic of executives’ effect on corporate performance has beenheated recently. Surprisingly, few researchers investigate the relationship between thetwo topics. Based on prior literature, we form our opinions that managers do haveeffect the tax avoidance of the companies because each manager has their ownmanaging style, which lead to the emphasis of different function departments duringthe operating process. This indicates that managers prefer different operatingactivities to affect the tax avoidance.To investigate the relationship between executives and tax avoidance, this papermakes a brief review from three dimensionalities based on the previous literatures.After a SWOT analysis of different models, we employ the effective tax rate modeldeveloped by Bertrand and Schoar (2003) to investigate whether the executives havesignificant effect on tax avoidance. For sampling, we select data of all executivesfrom year1991to2012in the database of Ruisi and choose the executives who wereemployed by at least two listed companies with tenure of at least three years.Combined methods of descriptive statistics, event study and regression analysis areemployed to investigate in two dimensionalities: the relationship between executives’position and tax avoidance, the extent how executives affect tax avoidance.It turned out to be that, firstly, CEO and CFO both have a significant effect ontax avoidance while Board Director do not have a significant effect. Compared withCFO, CEO reduces the tax avoidance to a larger extent. Secondly, different types of executives have different types of effect on the tax avoidance. For example,executives with increasing tax rate will increase the tax rate by0.15during theirtenures whilst executives with decreasing tax rate will decrease the tax rate by0.20during their tenures. Executives with no effect on tax rate will stay the same duringtheir tenures.According to the empirical results above, such advice is made, tax authoritiesshould pay attention to the behavior of executive boards, especially CEO who couldaffect the tax avoidance to a large extent. However, for the non-executive boards,little attention is needed as board directors have little impact on the tax avoidance.